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Chapter 5

Inventories and Related Expenses


1. A
2. C
3. C
4. C
5. A
6. P6,566
7. B
8. B
9. C
10. C
11. D
12. A
13. C
14. B
15. A
16. C
17. B
18. A
19. C
20. C
21. D
22. A
Solutions:
1.

Cash = 240,800 163,650 + 90,000

P167,150

2.

Accounts Receivable = 563,500 + 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 + 54,375 43,750

P1,153,975

5.

Inventory, January 1
Purchases
Goods available for sale
Cost of goods sold (4,000,000 x 70%)
Inventory, based on gross profit test
Inventory, per count
Missing inventory

P 450,000
3,150,000
P3,600,000
2,800,000
P 800,000
750,000
P 50,000

6.
Inventory, January 1
Purchases
Additional markup
Markdown
Goods available for sale
Cost ratio = 46,800 / 69,800 = 67%
Sales

Cost
P14,200
32,600
P46,800

Retail
P20,100
50,000
1,900
(2,200)
P69,800
60,000

Chapter 5
Inventories and Related Expenses
Ending inventory at retail
Cost ratio
Inventory, December 31

7.

Inventory, December 31, 2011


Purchases
1,410,000 + 10,000 20,000
Goods available for sale
Cost of goods
sold
Accounts receivable, December 31
Collections
Accounts receivable, January 1
Sales on account
Cash sales
Total sales
Cost
ratio
Ending inventory before shortage
Inventory, per count
Inventory
shortage

P 9,800
67%
P6,566

P 320,000
1,400,000
P1,720,000
P 300,000
1,800,000
( 250,000)
P1,850,000
350,000
P2,200,000
60%

1,320,000
P400,000
360,000
P 40,000

Items 8 and 9
Overhead = 25% x P900,000 =
Direct labor cost = P225,000/75%
Direct materials 900,000 225,000 300,000
Total manufacturing cost

Per audit:
P225,000
300,000
375,000
P900,000

Per client
P225,000
275,000
400,000

Let x be the ending work in process inventory


.6x is the beginning inventory
.6x + 900,000 x = 800,000
100,000 = .4x
x = 250,000
10.

Sales per client


Returned goods
Goods shipped in December
Goods shipped in January
Correct sales

P2,300,000
( 50,000)
80,000
( 100,000)
P2,230,000

Adjustment
P
0
25,000
(25,000)

Chapter 5
Inventories and Related Expenses
Items 11 through 14

Per client
Parts held on consignment,
recorded as
purchases and included in
inventory
Parts sold still included in
inventory
Parts sold FOB shipping point
Goods out on consignment
Goods purchased in transit,
FOB
shipping point
Freight bill, unrecorded,
relating to
unsold goods
Cash discounts available
Per audit

Inventory

Accounts
Payable

1,250,000

1,000,000

Sales Effect on Cost of


Sales
9,000,000

(155,000)

(155,000)

---

(22,000)

22,000
40,000

210,000

(210,000)

25,000

25,000

2,000

2,000

(5,300)
1,304,700

(5,300)
866,700

Inventory

Purchases
P 17,940

9,040,000

(188,000)

Sales

Net income
P(17,940)
(31,380)
(12,150)
18,200
P(7,390)

Items 15 through 18
March purchases recorded in Apr
Shipments in April
Goods shipped on March 31
Goods not counted
Understate (overstatement)
19.

20.

(31,380)
(12,150)
18,200
P6,050

Cash balance, December 31, 2010


Payment on accounts payable
Payment for operating expenses
Total cash
available
Cash balance, December 31, 2009
Collection on notes receivable
Sales
Unit sales price
Units sold
Average cost of purchases 32.60 +
2

P17,940

P(31,380)
P353,300
474,700
220,000

P1,048,000
(100,000)
( 25,000)
P923,000
P 50
18,460
32.60 x 0.10
(11 months)

P 33.15

Accounts payable, Beginning


Purchases 1,500 x 12 months x P33.15
Payments on accounts payable
Accounts payable, ending
21.
22.

Units in the beginning inventory


Units purchased
1,500 x 12
Units sold
Units in the ending inventory
Valued as
follows
1,500 x 33.70
1,500 x 33.60
1,500 x 33.50
1,190 x 33.40
Inventory, December 31, 2012

58

199,875 /
32.50

P 75,000
596,700
(474,70
0)
P197,000
6,150
18,000
(18,460)
5,690
P50,550
50,400
50,250
39,746
P190,9
46

Chapter 5
Inventories and Related Expenses
TIGER CORPORATION
Per count
Coins and currencies
Checks
Petty cash vouchers
December 2012
January 2013
Advances to Officers and Employees
December 2012
January 2013
Total per count
Cashiers accountability
Petty cash fund
Collections
December collection
P1,500
January 2006 collection
2,700
Cash shortage

P4,700
4,200
P1,900
500

2,400

P 900
300

1,200
P12,500

P10,000

4,200

14,200
P1,700

Cash in Bank
Unadjusted Balances
Deposits in transit
Unrecorded and undeposited collections (see above)
Unreleased checks
Stale checks
Outstanding checks (22,630 5,750 4,280)
Uncollected note from Sergio Garcia
Principal
P3,600
Interest
108
DAIF Check from customer
Service charges
Adjusted balances

Per Bank
P252,742
10,700
1,500

Per Books
P247,820
1,500
5,750
4,280

(12,600)

P252,342

(3,708)
(2,850)
( 450)
P252,342

Adjusting entries
Selling and Administrative Expenses
Receivable from Officers and Employees (900 + 1,700)
Petty Cash Fund

1,900
2,600

Cash in Bank
Accounts Receivable
Accounts Payable (5,750 + 4,280)

11,530

4,500
1,500
10,030

Accounts Receivable (3,708 + 2,850)


Selling and Administrative Expenses
Cash in Bank

6,558
450

Sales

8,000
Accounts Receivable

59

7,008

8,000

Chapter 5
Inventories and Related Expenses
Inventories
Cost of Sales

7,500

Sales

10,000

7,500

Accounts Receivable

10,000

Accounts Receivable
Sales

12,000

Cost of Sales
Inventories

10,200

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 22% x 30/360 = 183

12,000

10,200
47
47

P328,300
( 1,500)
6,558
(8,000)
(10,000)
12,000
P327,358
5%
P 16,368
16,415
P ( 47)
10,000
10,000
183
183

Interest Receivable
Interest Income
20,000 x 18% x 77/360 = P770
15,000 x 20% x 59/360 =
492
8,000 x 15% x 46/360 =
153
Total
P1,415

1,415

Income Tax Payable


Income Tax Expense
35,065 32,135 = 3,127

2,930

60

1,415

2,930

Chapter 5
Inventories and Related Expenses
Answers:
1.

Petty Cash

2.

Cash in bank

3.
4.
5.
6.
7.
8.

Accounts receivable
Allowance for doubtful accounts
Notes receivable
Interest receivable
Merchandise inventory
Receivables from officers and
Employees

9.
10.
11.

Accounts payable
Notes payable
Interest Payable

12.
13.
14.
15.
16.
17.
18.
19.
20.

Income tax payable


Sales
Cost of sales
Selling and administrative expenses
Bad debts expense
Interest income
Interest expense and bank charges
Net income
Total assets

P5,50
0
252.34
2
327,35
8
16,368
43,000
1,415
221,300
12,84
0
397,03
0
73,070
11,363
10,16
2
1,869,000
1,184,700
530,300
12,553
9,820
56,703
72,838
2,224,430

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