[Document title]

Inventory

Problem 1

The following pertains to CONTROL INVENTORY Company.

Goods out on consignment at another company’s store 750,000

Goods sold on installment basis 100,000
Goods purchased FOB Shipping Point that are in transit as of December 31 110,000
Goods sold to another company for which CONTROL INVENTORY company has 400,000
signed an agreement to repurchase at a set price that covers all cost related to
inventory
Goods sold where large returns are predictable 280,000
Goods sold FOB Shipping point that are in transit as of December 31 120,000
Freight Charges on goods purchased 50,000
Advertising Expense 30,000
Office Supplies 10,000
Factory Supplies 5,000
Goods held on consignment from another company 450,000
Goods sold to customer which are being hold for the customer to call at customer’s 200,000
convenience
Trade discount already deducted from invoices of goods purchased 100,000
Import duties 20,000
Commission paid to agents for arranging imports 10,000
Advance payment made by the entity to a supplier for the goods to be manufactured at 150,000
entity’s specifications
Abnormal amount of wasted materials 20,000

Administrative Overhead 10,000

Selling Cost 20,000

VAT on goods purchased(the company is a non-vat taxpayer) 30,000
Storage cost before the raw materials purchased put into production 15,000
Inventory pledged as a security for a loan 100,000
Inventory borrows from another entity to be replaced with the same kind of inventory 30,000
Inventory purchased with a right of return 14,000
Inventory purchased with trial arrangement 50,000
Inventory purchased under a bill and hold arrangement 45,000
Inventory purchased under lay away plan 30,000
How much should be reported as inventory in the financial statements?

Problem 2

Pakabilang Mu Company is engaged in the wholesale business and makes all sales at 25% over cost.
On December 31, 2020 physical count of inventory, the company reported a total cost of 570,000. The
company also reported total sales of 6,420,000, purchases of 2,920,000, accounts receivable of
1,050,000 and accounts payable of 600,000 on December 31, 2020. Upon your audit, you discover the
following.

a. The last receiving report that had been used was No. 16 and that no shipments had been made
on any sale invoices whose number is larger than No. 65. Upon checking the sales account,
sales invoices whose number is larger than 65 were recorded. This has a total invoice amount of
110,000.
 b. Included in the warehouse physical inventory at December 31 were goods which had been
purchased and received on Receiving Report No. 12 but for which the invoice was not received
until the following year. Cost was P16,000. Receiving Report No. 12 was not included on the
purchase journal for the year ended 2020.

c. At the close of business on December 31, 2020, there were two trucks on the company premises:
1. Truck No. CPA 2021 was unloaded on January 2 of the following year and received on
Receiving Report No. 16. The invoice price of the inventory is 62,000.
2. Truck No. GOTIT VACCINE 12 was loaded and sealed on December 31 but left the company
premises on January 2. This order was sold for 200,000 per Sales Invoice No. 65.
d. Temporarily stranded at December 31 at the railroad sliding were two delivery trucks enroute to
Mapanyali Company. Mapanyali received the goods which were sold on Sales Invoice No.63,
terms FOB Destination, the next day. Sale invoice No. 63 amounted to 300,000.
e. Enroute to the Pakabilang Mu Company on December 31 was a truckload of goods, which was
received on Receiving Report No. 17. The goods were shipped FOB Destination, and freight of
P1,000 was paid by the Pakabilang Mu Company. However, the freight was deducted from the
purchase price of P800,000.
f. The physical count included goods billed to a customer FOB shipping point on December 31,
2020. These products cost P192,000. They were in the shipping area waiting to be picked up by
the carrier.
g. Goods shipped FOB shipping point by a vendor were in transit on December 31, 2020. These
goods has a list price of P300,000 with a trade discounts of 15%, and 10%. These were shipped
on December 29, 2020. Freight cost is 10,000, freight prepaid. Invoices were received in the
following year.
h. There were goods sold costing 100,000 to a customer during 2020. These were recorded in sales
invoice number 59. The entity has signed an agreement to repurchase these inventories during
February 2021. The total billed amount is still outstanding at December 31, 2020.
i. Pakabilang Mu Company made an advance payment of 120,000 to a vendor for goods to be
manufactured at Pakabilang Mu Company specification. The company debited advances to
contractor on the date of transaction.
j. Goods out on consignment to another entity with sales price of 900,000. Freight cost of 80,000
was paid by the Pakabilang Mu Company.
k. A monthly freight bill for P100,000 was received on January 3, 2021 from one of the logistic
company that the company transacts into. It specifically related to some of the merchandise
bought in December 2020, one-half of which was still in the inventory at December 31, 2020. The
freight was not included in either the inventory or in accounts payable at December 31, 2020.

1. What is the adjusted balance of inventory on December 31, 2020?

2. What is the purchases for the year ended December 31, 2020?
3. What is the adjusted accounts receivable on December 31, 2020?
4. What is the adjusted accounts payable on December 31, 2020?
5. What is the sales for the year ended December 31, 2020?

Problem 3

You are the partner of an audit engagement. Your team determined that your client has a strong internal
control. Accordingly, you have decided to observed the physical inventory at interim date which is
November 30,2020 instead of year end. The following information was obtained from the general ledger
of your client.

Beginning Inventory for the Year 2020 1,612,000

Inventory based on physical count at interim date 1,637,500
Unadjusted Sales for 11 months ended November 30, 2020 11,850,000

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 Unadjusted Sales for the year ended December 31, 2020 15,400,000
Unadjusted Purchases for 11 months ended November 30, 2020 10,325,000
Unadjusted Purchases for the year ended December 31, 2020 12,100,000
The audit disclosed the following information:

a. Goods sold in November, FOB shipping point, were only recorded as sales in December 2020 when 50,000
the customer notify the company that it has received the goods. The goods were in transit on
November 30,2020
b. Goods received in November were included in the physical inventory but the invoices were received on 111,500
December, Accordingly, the transactions were recorded as December purchases
c. Goods received in unsalable condition were excluded from physical inventory. Credit memos had not
been received nor charge backs to vendors have been recorded.
 Total as of November 30,2020 18,000
 Total as of December 31, 2020 24,500
d. Deposit made with vendor was charged to purchases in October 2020. However, product was only 40,000
shipped in February 2021 due to the COVID-19 protocol in the premises of the vendor
e. Deposit made with vendor was charged to purchases in November 2020. Product was shipped FOB 93,500
Destination on November 29, 2020 and was included in November 30,2020 physical inventory as
goods in transit
f. Due to the typhoon DANTE, a shipment in early December 2020 was damaged. Fortunately, this 110,000
shipment was later sold in the last week of December at cost.
1. Compute for the cost of goods sold during the month of December 2020 using the gross profit
method.
2. Compute the December 31, 2020 inventory using the gross profit method.

Problem 4

Matasku AUDPROB Company uses the first-in, first-out method in calculating cost of goods sold for the
three products that the company handles. Inventories and purchases information concerning the three
products are given for the month of January.

Product C Product P Product A

January 1 Inventory 55,000 units at 33,000 units at 10.00 66,000 units
6.00 at 0.90
January 5 Purchases Purchases 73,000 units at 45,000 units at 10.50 30,000 units
6.50 at 1.25
January 16 Purchases 32,000 units at
Purchases 8.50
January 11 Sales 105,000 units 50,000 units 45,000 units
January 31 sales Sales price 7.00/ unit 11.00/unit 2.00/unit
price

On January 31, the company’s suppliers reduced their prices from the most recent purchase prices by the
following percentages: Product C, 20%; Product P, 10%; Product A, 8%. Accordingly, Matasku
AUDPROB decided to reduce its sales price on all items by 10% effective February 1. Matasku
AUDPROB selling cost is 10% of sales price. Product C and P have a normal profit margin(after selling
cost) of 30% on sales price, while the normal profit margin of Product A(after selling cost) is 15% of sales
price.
1. Compute the amount of inventory to be reported on company’s balance sheet at January 31.

2. Compute the cost of sales, after loss on inventory writedown for the month of January

3. Using the Periodic Average Method, what amount should be reported as inventory at January 31?

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 4. Using the Perpetual Average Method and assuming the January 16 purchases of C is only P5.00,
what amount should be reported as inventory at January 31?

Problem 5

On December 1, 2020, TJ Company entered into a commitment to purchase 111,111 barrels of fuel for 54
per barrel on March 31, 2021. The entity entered into this purchase commitment to protect itself against
the volatility in the fuel market. By December 31, 2020, the purchase price of fuel had fallen to P49 per
barrel. However, by March 31, 2021, when the entity took delivery of the 111,111 barrels the price of fuel
had risen to P51 per barrel.
The company was able to use 50,000 barrels during the year 2021. There was no beginning inventory for
the year 2021. On December 31, 2021, the net realizable value of the inventory is P48 per barrel.
Inventory has a replacement cost of 2,800,000. On the early part of 2022, market conditions have
improved which increases the NRV to P56 per barrel. Fair value less cost to sell at the early part of 2022
is P55 per barrel.

1. What amount should be recognized as gain(loss) on purchase commitment in 2021?

2. What amount should be debited to purchase on March 31, 2021?

3. What amount should be reported as gain on reversal of inventory writedown in 2022?

Problem 6

Masakit Iwanan Company used the retail inventory method to approximate the ending inventory. The
following information is available for the current year:
Cost Retail
Beginning Inventory 420,000 1,210,000
Purchases 8,120,000 13,400,000
Freight in 223,440
Purchase Returns 400,000 550,000
Purchase Allowances 150,000
Departments transfer in 200,000 300,000
Net markups 400,000
Net markdowns 970,000
Sales 7,500,000
Sales Return 50,000
Sales Discount 50,000
Employee Discounts 500,000
Estimated Normal Losses 800,000
Abnormal Spoilage 4,800 8,000

1. Determine the cost of ending inventory under Conservative Approach

2. Determine the cost of ending inventory under Average Cost Approach

3. Determine the cost of ending inventory under FIFO Approach

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