PROBLEM 1 In annual audit on December 31, 013, the following transactions of Novelty Company are discovered. 1. Merchandise was received on January 8, 2014, and the related purchase invoice recorded on January 5, 2014. The invoice showed the shipment was made on December 29, 2013, FOB destination. 2. Merchandise was received on December 28, 2013, and the invoice was not recorded. It was located in the hands of the purchasing agent and was marked on consignment. 3. A packing case containing merchandise was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions”. An investigation revealed that the customer’s order was dated December 18, 2013, but the case was shipped and the customer billed on January 10, 2014. 4. Merchandise received on January 6, 2014 was recorded as a purchase on January 7, 2014. The invoice showed shipment was made FOB supplier’s warehouse on December 31, 2013. Since it was not on hand on December 31, 2013, it was not included in inventory. 5. A special article, fabricated to order for a customer, was finished and in the shipping room on December 31, 2013. The customer was billed on that date and the article was excluded from inventory although it wasshipped on January 4, 2014. Required: State whether the merchandise should be included in the inventory on December 31, 2013 and state the reason for each item. Answer: 1. EXCLUDE – The term of the shipment is FOB destination. 2. EXCLUDE – The goods are held only for consignment. 3. INCLUDE – There is no perfected sale yet as of December 31, 2008. 4. INCLUDE – The term FOB supplier’s warehouse is synonymous with FOB shipping point. 5. EXCLUDE – There is already a constructive delivery since the article was specificallymade according to the customer’s specifications and the article is already completed on December 31, 2008. PROBLEM 2
Summer Company is a wholesaler of car seatcovers. At the beginning of the current year, the entity’s inventory consisted of 90 car seatcovers priced at P1,000 each. During the current year, the following events occurred: 1. 2. 3. 4. 5.
Purchased 800 car seatcovers on account at P1,000 each. Returned 50 defective car seatcovers to supplier and received credit. Paid of the car seatcovers purchased. Sold 790 car seatcovers at P2,000 each. Received 2 0car seat covers returned by a customer and gave redit. The goods were in excellent condition. 6. Received cash for 680 of the car seat covers sold. 7. Physical count at year-end revealed 60 units on hand. Required: a. Prepare journal entries, including adjustments to record the above transactions assuming the company uses periodic system and perpetual system. b. Determine the cost of sales under each inventory system. Requirement a Periodic System
Perpetual System
1. Purchases Accounts payable 800,000
800,000
2. Accounts payable Purchase returns 50,000
50,000
3. Accounts payable Cash 4. Accounts receivable Sales 1,580,000 5. Sales return Accounts receivable 790,000
800,000
50,000 600,000
1. Merchandise inventory 800,000 Accounts payable 2. Accounts payable 50,000 Merchandise inventory
600,000
3. Accounts payable Cash
1,580,000
4. Accounts receivable Sales
1,580,000
40,000 40,000
600,000 600,000 1,580,000
Cost of sales 790,000 Merchandise inventory
6. Cash 1,360,000 5. Sales return 40,000 Accounts receivable 1,360,000 Accounts receivable 40,000 7. Inventory-Dec. 31 Income summary 20,000 (60 x 1,000)
60,000 60,000
Merchandise inventory Cost of sales
20,000
6. Cash
1,360,000 Accounts receivable
7. Inventory shortage 10,000 Merchandise inventory
Shortage
Merchandise inventory per book Physical count 60,000 10,000
1,360,000 10,000 70,000
Requirement b Periodic System
Perpetual System
Inventory – January 90,000 Cost of sales recorded Purchases 800,000 (790,000 – 20,000) Purchase returns ( 50,000) 750,000 Inventory shortage Goods available for sale 840,000 Adjusted cost of sales 780,000 Less: Inventory – December 31 60,000 Cost of sales 780,000
770,000 10,000
PROBLEM 3 Daydream Company began operations on January 1 with 10,000 units of merchandise with unit cost of P80. Purchases for the year follow: Lot No.
Units
Unit Cost
1 200 2 8000 3 6000 4 9500 5 14500 The physical inventory reveals 15,000 units on hand
100 110 120 100 90 on December 31.
Required: Compute inventory cost on December 31 and cost of goods sold following each method listed below: 1. FIFO-periodic 2. Weighted average- periodic 3. Specific Identification (assuming the inventory comes form Lot 3 6,000 units and Lot 4, 9,000 units)
Units Total cost 1. FIFO - periodic Lot No. 4 50,000 5 1,305,000
Unit cost 500
100
14,500
90
15,000 2. Beginning inventory 800,000 Purchases: Lot No. 1 200,000 880,000 720,000 950,000
1,355,000 10,000
80
2,000
100
2
8,000
110
3
6,000
120
4
9,500
100
14,500
90
5 1,305,000 Goods available for sale
50,000
Weighted average (4,855,000/50,000)
15,000
4,855,000 97.10 1,456,500
3. Specific identification Lot 3 4
6,000 9,000 15,000
FIFO Weighted average Specific identification
Goods available 4,855,000 4,855,000 4,855,000
120 100
Inventory-Dec. 31 1,355,000 1,456,500 1,620,000
720,000 900,000 1,620,000 Cost of sales 3,500,000 3,398,500 3,235,000
PROBLEM 4 The following information pertains to an inventory item of Emcee Company for the month of December of the current year. Units 1-Dec 7 12 17 22
Beginnin g Purchase Sale Purchase Purchase
10000 30000 20000 60000 20000
Unit Cost
Unit selling price
52 50 90 45 43
28 Sale
70000
90
Required: Assuming the entity uses the periodic system, compute the December 31 inventory and cost of goods sold under: 1. FIFO 2. Weighted average
FIFO December 17 450,000 22
Average method December 1 520,000 7 17 22 Available for sale Inventory (5,580,000/120,000)
10,000 20,000 30,000
45 43
860,000 1,310,000
10,000
52
30,000 60,000
50 45 860,000 5,580,000
20,000 120,000 30,000
43
46.50 1,395,000 FIFO 5,580,000
Goods available for sale 5,580,000 Less: Inventory – December 31 Cost of goods sold
1,500,000 2,700,000
1,310,000 4,270,000
Average
1,395,000 4,185,000
PROBLEM 5 The records of Extreme Company showed the following: Units
Unit Cost
Total Cost
Beginnin 1-Jan g 31 Sale
10000 5000
40 400,000.00
1-Apr Purchase 31-Jul Sale 1-Oct Purchase
15000 18000 25000
50 750,000.00 60
1,500,000.
00 1-Dec Sale
12000
Required: Compute the cost of the ending inventory and cost of sales using: 1. FIFO- periodic 2. Weighted average 3. Moving average
Units Total cost
Unit cost
FIFO October 1
15,000
60
900,000
Weighted average – periodic January 1 April 1 October 1 Goods available for sale Less: Sales Ending inventory
10,000 15,000 25,000 50,000 35,000 15,000
40 50 60
400,000 750,000 1,500,000 2,650,000
Weighted average (2,650,000/50,000)
15,000
53
Units
795,000
Unit cost
Total
cost Moving average – perpetual January 1 31 Balance 200,000 April 1 Total 950,000 July 31 Balance 95,000 October 1 Total 1,595,000 December 31 Balance average
10,000 ( 5,000) 5,000
40 40
15,000 50 20,000 (18,000) 2,000 25,000 60__ 27,000
400,000 ( 200,000) 40 750,000 47.50 47.50 ( 855,000) 47.50
1,500,000 59.07
(12,000) 59.07 ( 708,840) 15,000 59.07 886,160 FIFO
Weighted
Inventory – January 1 Purchases Goods available for sale Less: Inventory – December 31 Cost of sales
400,000 2,250,000 2,650,000 900,000 1,750,000
Cost of sales – Weighted average perpetual January 31 Sale July 31 Sale December 31 Sale Total cost of sales
400,000 2,250,000 2,650,000 795,000 1,855,000 200,000 855,000 708,840 1,763,840
PROBLEM 6 The inventory records of Premiere Company showed the following data: Units Materials R S T Goods in process X Y Finished goods A B
Unit Cost
NRV
1000 2000 3000
110 250 300
100 260 330
4000 5000
500 650
480 620
2000 2000
800 730
790 780
Required: Determine the valuation of inventory following the measurement at LCNRV. Lower of Units value Materials: R S
1,000 2,000
cost or NRV 100 250
Inventory 100,000 500,000
T
3,000
300
900,000
Goods in process: X Y
4,000 5,000
480 620
1,920,000 3,100,000
Finished goods: A B
2,000 2,000
790 730
1,580,000 1,460,000
Valuation at lower of cost or NRV
9,560,000
PROBLEM 7 The inventory of HH Company at the end of the current year is to be recorded at the lower of cost or net realizable value. Ending inventory data per unit are summarized below: Item A B C D E
Units Cost Estimated sales price 1000 120 180 1500 110 140 1200 150 170 1800 140 190 1700 130 200
Cost of sell 30 20 30 30 40
Required: Determine the inventory value applying the lower of cost or net realizable value. (Lower of cost or NRV) Units Unit cost value A B C D E
1,000 1,500 1,200 1,800 1,700
120 110 150 140 130
NRV 150 120 140 160 160
Inventory 120,000 165,000 168,000 252,000 221,000 926,000
PROBLEM 8 Landmark Company purchased a tract of unimproved land for P26,850,000. The land was improved and subdivide into residential lots at a cost of P43,500,000. These lots were all of the same size but owing to differences in location were offered for sale at different prices as follows:
Number of lots
Group
Sales price per lot
1
20 3,000,000.00
2
40 2,500,000.00
3
100 2,000,000.00
Group 1 2 3
5 4 3
Required: Compute the cost of unsold lots at the end of the year.
Purchase price Improving and subdividing cost Total cost
26,850,000 43,500,000 70,350,000
Sales price Group 1 (20 x 3,000,000) 40,200,000 2 (10 x 2,500,000) 16,750,000 3 (10 x 2,000,000) 13,400,000
Group 1 (40,200,000/20) 10,050,000 2 (16,750,000/10) 6,700,000 3 (13,400,000/10)
Fraction
Cost
60,000,000
60/105
25,000,000
25/105
20,000,000
20/105
105,000,000
Cost per lot
70,350,000
Unsold
Cost
2,010,000
5
1,675,000
4
1,340,000
3 4,020,000 20,770,000
