Chapter 5 inventories and Related Expenses ‘MULTIPLE CHOICE ~ THEORY Le 2 ZA 46 oa 60 TAL A [so 40.0 Problem 1 (Goodwill Company) Inventories 88,800 Cost of Sales 88,800 16,000 + 13,200 + 26,100 + 19,200 + 14,300 = 88,800 ‘Accounts Payeble 15920 Costof Sales 15,920 Inventories 13,500 Costof Sales 13,500 Costof Sales 13,500 ‘Accounts Payable 43,500 Cost of Sales 4,200 ‘Accounts Payable 4,200 Inventories 22.200 ‘Accounts Payable 72,200 16,000 + 6,200 = 22,200 ‘oF two separate enti for purchases and inclusion in ending inventory Cost of Sales 85,000 Inventories 65,000 Sales 98,000 ‘Accounts Receivable 98,000, Inventories 65,000 Cost of Sales 65,000 Cost of Sales 17,800 Inventories 17,600 Problem 2 (Vietory Enterprises) Inventory, per client P i500 Goods shipped to customer on Dec 31, 2010 (presumed in Wanalj, FOS sestination 38,000, Goods in trans, shipped by a supplier FOB shipping point [agente [Correct inventory emount, December 3 Inventories : Coctof Sales 89,000Chapter 5 Inventories and Related Expenses Problem 3 (Raindrops Company) (2) Correct inventory, November 30 Purchases in November 12,000 + 14,000 ‘Units sold (50,000 - 4,000) Correct inventory level, December 31 (0) Adjusiing entries: (Cost of Sales (unrecorded purchases) ‘Accounts Payable 14,000 x 90 = P1,120,000 Sales (,000 x 126) ‘Accounts Receivable Inventories (18,000 x 90) Cost of Sales {nventores, November 30, Received in December ‘Shipped out Goods reported Correct inventory evel Understatement in units Problem 4 (Bulls Company) 1,260,000 500,000 1,820,000 (2) Net agusiment to inventory = 21,096 nei debit (See audit adjustments) Inventory, per count "Net adjustment to inventory Inventory, per auelt o) Adjusting entries Sales < ‘Accounts Receivable 5.641 +7,922 +2010, Cost of Sales / Purchases ‘Accounts Payable Inventory Cost of Sales / Income Summary Inventory (12,700 /125%) Cost of Sales / Income Summary Sales ‘Accounts Receivable Inventory (19,270/125%) Costof Sales 18,773 2.183 8120 10,160 19270 15416, 50 5,000 28,000 ~ 4,260,000 506,000 1,820,000 5,000 12,000 17,000 98,000 1873 2,183 8,120 10,160 19,270 15.416Chapter $ Inventories and Related Expenses Miscellaneous Receivables (ram Carer) 12,600 Inventory 11,250 1,350, 12,600 Problem 5 Tnventory | Accts Payable Net Sales, ina aunts 400,600 800,000 40,160,000, Adjustments: a (0000) b. 65,006, 35,000, a 50,000 4 32,000 (5000) a 64,000, 1. 27,000, [o. 36,000, h. 200 8,000 Netagustrent 239,000 729,000 (105,000) Corrected balances 2839 000 829,000 | P0,046,000 a Sales 60,000 ‘Accounts Receivable 60,000 b—_loventory 65,000 ‘Accounts Payable 65,000 Inventory 50,000 Costot Sales 0,000 4, Sales Retums and Allowances 45,000 ‘Accounts Receivable 45,000 Inventory 92,000 Costof Sales 32,000 &—_leventony 64,000, : Costof Sales 61,000 t toventory 7.000 Costof Sales 27,000 @ —Costof Sales 6,000 ‘Accounts Payable 56,000 bh Costof Sales 4,000 Inventory 4,000 Accounts Payable 8,000 StChapter 5 Inventories and Related Expenses Problem 6 (Firenze Fashions) 52 [ a ‘General Physical Count Unadjusted balances P 221,020 P 212820 ‘Goods hed on consignment (68,000) ‘Goods purchased FOB shipping pom in Fansit 12,000 Goods shipped out FOB destination, in vansit 724,000 24,000) ‘Goods purchased and received, bul not yet recorded 77,300) ‘Goods sod, sl unrecorded (63.000) Unsalable goods (28,500) Balance per auc P 162,820 P20 ‘Aut Adjustments Sales 39,000 ‘Accounts Receivable 39,000 Inventory 24,000 Costof Sales 24,000 Inventory 27,300 ‘Accounts Payable 27,00 ‘Accounts Receivable 96,000 Sales 96,000 Cast of Sales 63,000 Inventory 63000 Loss rom Inventory Obsolescence 26,500 Inventory 26,500 Problem 7 No enty onthe P100,000 shipment Unvntory (75% x 80,000) 60,000 Costof Sales 60,000 ‘Accounts Receivable 60,000 Sales 0,000 Sales 40,000 Accounts Receivable 40,000 Inventory 20,000 Costof Sales 30,000Chapier 5 Inventories and Related Expenses Problem 8 (Maligaya Corporation) Overall Gross Profit Ratio ‘ventory, January 1, 2011 690,000 ‘Net Purchases 2011 and 2012 (2,800,000 + 2,360,000) 8.160.000 ‘Goods avilable for sale 5,810,000 Less: inventory, December 31,2012 750.000 Cost of goods sol, 2005 and 2008 75,060,000 Sales ~2011 and 2012 (6,300,000 + 3 900,000) 9,200,000 Less: Cost of goods sold 5,060,000 Gross Profit ‘P4.140,000 Gross Profit Ratio = 4,140,000 9,200,000 Sh Inventory Fire Loss Inventory, January 1, 2013 P 750,000 ‘Add; Purchases January 1 to Apr 15, 2013 January to March 31 P 520,000 Apri t0 15 Paid 34,000 pucteoe at 106,000 urcheseretums 9.500) _ 659.500 “oial goods avalible for sale P1,400,500 Less; Cost of goods sold, January 1 to April 15 ‘Accounts Receivable, Afi 15 380,000 Wits of 0,000 Collections (129,500 - 9,500) 120,000 ‘Accounts Receivale, March 31 { 400,000) Sales, Apri to 15 P 160,000 Sales, January {to March 31 -1.360,000 Sales, January 1 April 15 1,510,000 Cost rato (100% - 45% ) 55% _ 830,500 Inventory, Apr 15, before the fre P'570,000 Less: undamaged goods (in tansi P 23,000 Proceeds from see of damaged goods (lower than cos) __30,000 __ 53.000 Inventory fire loss, P5170 Problem 9 (Bily Corporation) - ] 1 montis ended May | Year ended Jone 30 Ea Purchases peraient P_ 6,750,000 P 8,000,000 ‘Sioments received in Way bul recorded in June 75,000 Credit mernoranda not recorded 170,000), (15000) Deposit for July purcnases recorded as Apri purchases: 20,000) (20,000), Deposit in May, recorded as purchases (65,000), 55,000. Purchases, pet uit 6,740,000 8,020,000, (2) leventory, Jui , 2011 875,000 Purchases, duly 1, 2011 lo May 31,2013 6,740,000 Tota gocds avaiable for sale 7,615,000 Less. ventory, May31,2013 (960,000 ~ 85,000) 895.000 (Cost of goods sold July 1, 2011 to May 31,2013, 5.720.000 33Chapter 5 Inventories and Related Expenses Gross prot 8,400,000 - 6,720,000 = 1,680,000, Gross profit ratio = 1,680,000/ 8,400,000 2% (0) Sale in tune at normal seling price (P800,000 ~ 8 400,000) - 100,000 100,000 Costratio : “i Cost of goods sold in June at normal seing price P 60,000, Cost of merchanclse sod at cost 00,000 Cost of goods sold in June ‘P360,000 (2) Inventory, May 31.2012 896,000 Furchases in June (8,020,000 - 6,740,000) 4,280,000 Goods avalatle forsale 2,475,000 Cost of goods sod in June “380,000 Inventory, June 30 £195,000 Inventory, July 1, 2011 Purchases July 4, 2011 — June 30,2012 Total goods avaliable forsale Casta gods sal (8,600,000 100,000 x 80% =7, 600,000 —100,000 Inveniory, June 30,2012 Problem 10 (Chi FiFal) ‘Ait Ajusing Ents: ‘Accounts Receivable 50,000 Sales 0,000 Cost of Sees (50,000 x 80/120) 33.333 Inventory 33,333 (Other Operating Expenses ~Loss fom Inventory Contamination $00,000 Cost of Sales 200,000 Costof Sales 36,000 ‘Accounts Payable 35.000 (The company credited Coc of Sales on December 29 to adjust the stock cards inventory to inventory st, per physical count) Dectne in Net Realzable Value of inventory 90,000 ‘Alowance to Reduce Invetay to Net Reaizabe Value 90.000 Cost of Sates (400,000 — 0,000) 320,000 ‘Accounts Payable 320,000 (1+) Inventory is overstated by P33,333 as a resut 2f goods out on consignment. (2) The Accounts Receivable is understated by P80,000, asa result of goods out on consignment. (3,) The net income is understated by P16,667, asa result of goods cut on consignment (4.) The accounts payable shall be increased by £320,000. (5) The gross profits increased by PBO,000, which in effects the commission income. (G.) Inventory at cost, per auclt = P890,000 ~ P33,333 = PB56,667. (7,) The inventory shall be presented at P766,667, which isthe ons of 856.667 reduced by the allowance for decine in net realizabie value of PS0,000 54Chapter 5 Inventories and Related Expenses Problem 11 (Global Company) Aut Adustments Seling and Administrative Expenses 16000 Receivabies from Employees ~ 4,500 Paty Cosh Fund 17.500 Cashin Banks - B00 32.000 Value Added Tax Payable 32,000 Notes Payable - Bank 50.000 Interest Expense 18.000 Cashin Banks ~ Asian Bank 68,000 Sling and Administrative Expenses 200 ‘Cash n Banks ~ BF) 200 Equipment Acquisition Fund 4,400,000 ‘Cash in Banks ~ PNB 4,100,000 ‘Alowance fr Doubt Accounts 168,000 ‘Accounts Receivable (70% x 240,000) 168,000 Finished Gocds Inventory 60,000 Cost of Sales 60,000 200,000 x 80% x 50% = 60,200 Sales 75,000 ‘Accounts Receivable 60,000 80% 75,000 {inventor of Spoiled Goods end Sorap Materials 42000 Cost of Sales 38,000 Work in Process Inventory 80,000 Inventory of Spied Goods and Soap Mates 55,000 Costof Sales 85,000 Selng and Administrative Expenses 152,260 ‘Alowance for Doubtful Accounts 152,260 Accounts receivable, percient 3,400,000 Adjustments ( 168,000) L_75,000) Balance per audit 3,157,000 Account of Bue Rige 240,000 ~ 168,000 72,000) Remaining accounts 3,085,000 Provision rato on remaining 5% Required Alowanoe for D. A. Pie4250 Balance ofalowance 170,000 ~ 168,000 2,000) ‘Additional doubtful accounts expense P 152.250 55Chapter 5 Inventories and Related Expenses (1) Petty Cash Fund = 2,500 (2) Cash on deposits with Asian Bank = 400,000 - 68,000 332,000 (3) Cash on deposits with Security Bank = 350,000 - 50,000 P300,000 (4) Cash on deposits with Banco de Oro = (12,000) + 32,000 P 20,000 (5) Cash on daposits with BPI = 200,000 ~ 200 P%99,800 (8) Cash on deposits with PNB 1,100,000 a Total Cash in Bank - Current Assets = 332,000 + 300,000 + 20,000 + 199,800 = 851,800 (8) Accounts Receivable 3,187,000 (9) Allowance for Uncollectible Accounts 154,250 (10) Uncotectible Accounts Expense = 80,000 + 182,250 232,260 (11) Finished Goods Inventory = 600,000 + 60,000 ‘860,000 (12) Work in Process Inventory = 1,000,000 = 80,000 ‘920,000 (13) Raw Materials Inventory ‘400,000 (14) Inventor of Spoied Goods and Scrap Matera = 60,000 + 42,000 + 56,000 177,000 (15) Sales = 6,000,000 - 75,000 5,925,000 (16) Cost of Sales = 4,200,000 - 60,000 + 38,000 - 55,000 ‘4,123,000 (17) Seking and Administrative Expenses = 500,000 + 16,000 + 200 + 152,250 ‘P668,450 (18) Other Operating income 120,000 (19) Interest Expense and Finance Costs = 200,000 + 18,000 218,000 MULTIPLE CHOICE - PROBLEMS: TA [rs ae we 2c 8B 44.8 20. 3c aC 45. A 21.0 4 40.C 46. C 2A Ba 11.0 17.8 6. P6566 112A 48.A Solutions: 1. ‘Cash = 240,800 ~ 163,650 + 90,000 P167,150 2 Accounts Receivable = 663,500 + 77,500 ‘P641,000 3 Inventory = 1,512,500 + 68,750 + 54,375 - 159,375 + 32,500 P1,508,750 4. ‘Accounts Payable = 1,050,250 + 93, 100 + 64,375 - 43,750 ‘P1153,975 5. Inventory, January 1 P 450,000 Purchases 3.150.000 Goods avalable forsale 6,609,000 Cost of goods sold (4,000,000 x 70%) ‘Inventory, based on gross proft test 600,000, Inventory: per count 750,000 Missing inventory P_39,000 6 Cost Retail Inventory, January 1 14,200 'P20,100 Purchases 32,600 50,000 Additional markup 1,800 Markdown ae {2.200} Goods available for sale Pag 69,800 Cost ratio = 46,800 / 69,800 = 67% Sales 0.000 36Chapter 5 Inventories and Related Expenses Ending inventory at retail Cost ratio Inventory, December 31 Inventory, December 31, 2011 Purchases 1,410,000 + 10,009 20,000 Goods avaiable for sale Cost of goods sold ‘Accounts receivable, December 31 Collections ‘Accounts receivable, January 1 ‘Sales on account Cash sales Total sales Cost rato Endig inventory before shortage Inventory, per count Inventory shortage tems 8 and 9 (Overhead = 26% x P900,000 = Direct labor cost = P225,000178% Direct materials 900,000 - 225,000 - 300,000 Total manufacturing cost Let x be the ending workin process inventory S xis the begining inventory x + $00,000 — x = 800,000 400,000 = 4x 250,000 ‘Sales per client f Retumed goods ‘Goods shipped in December ‘Goods shipped in January Correct sales 57 Per audit: 225,000, 200,000 P 320,000 1.400.000 1,720,000 400,000 Per client 225,000 27,000 400,000 P2,300,000 (50,000) 20,000 9.800 ‘Adjustment P 0 25,000 (25,000)Chapter 5 Inventories and Related Expenses Items 11 through 14 Tiveniory | Accounts Payable Saee Eliton Catt S Per cient i 725,000 4,000,000 {000,000 Parts hed on consignment, recorded as (155,000), (15000) = Purchases and included in inventory 3 Pars sold sti inuded in inventory (22000) 22,000 Paris sold FOB shipping point ian 40,000 | ‘Goods out on consignment 210,000. (210;000) Goods “purchased in Wansi, FOB 25,000 000 | shipping point Freight bil, unrecorded, relaing to 2.000 2000 unsold goods Cash discounts avaiable T 300) (6300) Per audit 7,304,700 866,700 9,040,000 (188,000) tems 15 through 18 am ‘inventory Purchases Sales Netincome ‘rch purchases recorded in Ape = P17,940 (17,940) ‘Shien in Apa 3a) (1,380) ‘Goods shioped on March 31 (280) L (12,150) ‘Goods not counted 18,200 16,200 Understate (overstternent) 6,050 PHT (34,380) P(r. 390) 19. Cashbalance, December 31, 2010 363,300 Payment on accounts payable 474,703 Payment for operating expenses 720,000 Total cash avaiable 1,048,000 Cash balance, December 31, 2008 (100,000) CColecion on notes receivable £25,000) Sales 823,000 Unit sales price rae Units sold 18.480 20, Average cost of purchases 32.60 + 32.60 x0,10(11 months) P3815 2 ~ Accounts payable, Beginning. P 75,000 Purchases 1,500 x 12 months x P33.15, 596,700 Payments on accounts payable (474.700) ‘Accounts payable, ending P197,000 21. Unisin the beginning inventory 190,875 13250 6.150 Units purchased 1,500 x 12 48,000 Unis sla 18.460) 22. Units in the ending inventory 5080 Valued as flows 1,500 x 33.70 50;550 1,500 x 33.60 50,400 4500x3350 50,250 4190x3340 39,748 \nventory, December 31, 2012 P190,.946 58Chapter 5 Inventories and Related Expenses TIGER CORPORATION Per count Coins and currencies 4,700 Checks. 4,200 Petty cash vouchers December 2012 Pi,900 January 2013, 500 2400 + Advances to Officers and Employees December 2012 P 900 January 2013 300 1.200 Total per count Cashier's accountability Peity cash fund 10,000 Collections December collection P1500 January 2006 collection 2.700 4.200 14.200 Cash shortage P1700 Cash in Bank Per Bank ——_Per'Bocks Unadjusted Balances 252,742 247.870 Deposits in transit 10,700 ‘Unrecorded and undeposited collections (see above) 1,500 1,500 Unreleased checks 5,750 Stale checks 4,280 Outstanding checks (22,630 ~ 5,750 - 4,280) (12,600) Uneollected note from Sergio Garcia Principal 3,600 Interest 08 @,708) DAIF Check from customer 2,850) Service charges (450) Adjusted balances 7252342. 252,342 : Adjusting entries Selling and Administrative Expenses 1,900 Receivable from Officers andl Employees (900 + 1,700) 2.600 Peity Cash Fund 4.500 Cash in Bank 11,530 Accounts Receivable 1,500 Accounts Payable (5,750 + 4,280) 10,030 Accounts Receivable (3,708 + 2,850) 6558 Selling and Administrative Expenses 450 Cash in Bank 7,008 Sales 8,000 Accounts Receivable 8,000 59Chapter 5 Inventories and Related Expenses Inventories Cost of Sales Sates Accounts Receivable Accounts Receivable Sales Cost of Sales Inventories Allowance for Doubtful Accounts Selling and Administrative Expenses Accounts Receivable Per client Adjustments Per Audit Provision rate for uncollectibles Required allowance Existing allowance Deductions from uncollectible accounts expense Notes Receivable Notes Payable Interest Expense Interest Payable 10,000 x 229% x 30/360 = 183 Interest Receivable Interest Income 20,000 x 18% x 77/360 = P770 13,000 x 20% x 59/360 = 492 8,000 x 1596 x 46/360 =_153 Total PLAS Income Tax Payable Income Tax Expense 35,065 — 32,135 = 60 7,500 7,500 10,000 10,000 22,000 12,000 10,200 10,200 a a 328,300 (1,500) 6,558 (8,000) (10,000) 12,000 327,358 eer P 16,368 6.415 PC 4D 10,000 10,000 183 183 14S 1415 2,930 2,930Chapter 5 Inventories and Related Expenses Answers: Petty Cash 5,500 Cash in bank 252.342 ‘Accounts receivable 327,358 ‘Allowance for doubtul ccounts 16,368 Notas receivable 43,000 Interest receivable 445 Merchandise inventory 221,300 Receivables ftom offcers and Emsloyees 123840 Accounts payable 397,030 Noles payable 73,070 Interest Payable 11,363 Income tax payable 10,162 Sales 1,889,000 Costof sales 114,700 Seling and administrative expenses 530,300 Bad debis expense 12553 Interest income 9,820 Interest expense and bank charges 58,703 Netincome 72,838 Total assets 2.224.490 61