PROBLEM 12-1 Cost of Purchase

Purchase price based on vendors’ invoices 1,250,000

Brokerage commission paid to agents for arranging imports 50,000
Import duties 100,000
Freight and insurance on purchases 250,000
Other handling costs relating to imports (B) 25,000
Total cost of purchase P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s invoice.

PROBLEM 12-2 Inventoriable Cost

Materials 350,000
Irrecoverable purchase taxes 30,000
Labor 120,000
Variable production overhead 50,000
Fixed production costs 40,000
Cartage in 8,000
Total (C) 598,000

PROBLEM 12-3 Rebates

Question No. 1

Invoice price (no VAT is charged on these goods) 850,000

Less: Rebate offered to the entity by the supplier 10,000
Inventoriable cost (B) 840,000
Question No. 2

Inventoriable cost (C) 850,000

PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE

Question No. 1 Free on Board

Cost of inventory (100,000 x 45) (A) 4,500,000

ForEx loss (₱46.875 - ₱45) x 100,000 187,500
Question No. 2 Cost, Insurance and Freight

Cost of inventory ($100,000 x ₱45.625) (D) 4,562,500

ForEx loss (₱46.875 - ₱45.625) x 100,000 125,000

PROBLEM 12-5 MANUFACTURING COST

Question No. 1

Direct labor (₱3 x 3 DLH x 100,000 units) 900,000

Direct materials (₱2 excluding VAT x 100,000 units) 200,000
Fixed Cost (₱100,000 / 100,000 normal capacity) x 100,000 actual 100,000
Total cost (C) 1,200,000
Question No. 2

Variable cost:
Direct labor (₱3 x 3 DLH x 120,000 units) 1,080,000
Direct materials (₱2 excluding VAT x 120,000 units) 200,000
Fixed Cost (₱100,000 / 120,000 actual capacity) x 100,000 actual 100,000
Total cost (C) 1,420,000
Question No. 3

Variable cost:
Direct labor (₱3 x 3 DLH x 80,000 units) 720,000
Direct materials (₱2 excluding VAT x 80,000 units) 160,000
Fixed Cost (₱100,000 / 100,000 normal capacity) x 80,000 actual) 80,000
Total cost (D) 960,000

PROBLEM 12-6 Items to be Included in the Inventory

1 Items in the warehouse during the count 1,090,000

2 Items out on consignment at another company's store 70,000
4 Items purchased FOB shipping point that are in transit at December 31 500,000
5 Freight charges on goods purchased above 13,000
7 Items sold to another company, for which our company has signed an agreement
to repurchase at a set price that covers all costs related to the inventory. Total cost
of merchandise is 200,000
10 Items sold FOB destination that are in transit at December 31, at cost 75,000
14 Items currently being used for window display 100,000
15 Items on counter for sale 400,000
17 Items included in the count, damaged and unsalable (150,000)
18 Items in receiving dept., returned by customer, in good condition (not included in
the count) 50,000
19 Merchandise inventories out on approval, at cost 100,000
20 Finished special article goods, made to order (included in the count) (78,000)
Total (A) 2,370,000

The following items would NOT be reported as inventory:

3 Cost of goods sold in the income statement 40,000
6 Not reported in the financial statements 300,000
8 Cost of goods sold in the income statement 30,000
9 Cost of goods sold in the income statement 50,000
11 Advertising exp. In the income statement 10,000
12 Not reported in the financial statements 100,000
13 Temporary investments in the current assets section of the balance sheet 125,000
16 Not reported in the financial statements 360,000
21 Office supplies in the current asset section of the balance sheet 40,000
PROBLEM 12-7 Accounts Payable

Unadjusted balance 1,800,000

Goods acquired in transit, FOB shipping point 100,000
Goods lost in transit 50,000
Adjusted Accounts Payable (A) 1,950,000
The journal entry on item 2 would include the following:

Purchases / Inventory 50,000

Accounts Payable 50,000
Query: For F/S presentation on December 31, is the goods lost in transit be presented as part of
inventory?

No, since the inventories were lost in transit and it is improper to report inventories that is not
existing (i.e. it violates the existence assertion). Thus the journal entry at December 31 if no claim
was filed and the common carrier has yet to acknowledge the claim may include a:

Loss on goods lost in transit (preferably presented as other expense and 50,000
not as cost of goods sold)
Purchases / Inventory 50,000
And on the next year (January 5), when the claim was filed and acknowledged by the common
carrier, the journal entry will be:

Claims from common carrier 50,000

Gain on reimbursement of lost inventory 50,000
PROBLEM 12-8 Consigned Goods

Inventory shipped on consignment to Lomasoc 360,000

Freight by Desiree to Lomasoc 18,000
Total Inventoriable cost (D) 378,000
PROBLEM 12-9 Gross method vs. Net method

CASE NO 1: Gross method

01/02 Purchases (100,000 x [1-20%]) 80,000
Accounts payable 80,000
01/12 Accounts payable 80,000
Cash (80,000 x [1-98%]) 78,400
Purchase discount 1,600
01/14 Accounts payable 80,000
Cash 80,000
CASE NO 2: Net method
01/02 Purchases (100,000 x [1-20%] x [1-2%]) 78,400
Accounts payable 78,400
01/12 Accounts payable 78,400
Cash (80,000 x [1-98%]) 78,400
01/14 Accounts payable 78,400
Purchase discount lost 1,600
Cash 80,000
ANSWERS: 1. B 2. C 3. D 4. A 5. C 6. C 7. A 8. D
12-10

Question Nos. 1 and 2

Weighted average

Weighted average unit cost =

𝑇𝑜𝑡𝑎𝑙 𝑔𝑜𝑜𝑑𝑠 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝑠𝑎𝑙𝑒 (𝑖𝑛 𝑝𝑒𝑠𝑜 𝑣𝑎𝑙𝑢𝑒)
𝑇𝑜𝑡𝑎𝑙 𝑔𝑜𝑜𝑑𝑠 𝑎𝑣𝑎𝑖𝑙𝑎𝑏𝑙𝑒 𝑓𝑜𝑟 𝑠𝑎𝑙𝑒 (𝑖𝑛 𝑢𝑛𝑖𝑡𝑠)

=
1,105,000
85,000

= 13 per unit

Inventory end (40,000 x 13) = 520,000 1. (C)

Cost of goods sold (20,000+5,000+21,000–1,000) x 13 = 585,000 2. (C)

Question Nos. 3 and 4

Date Moving average Units Unit Cost Total Cost

April 1 20,000 10 200,000
April 2 Purchase 30,000 12 360,000
Balance 50,000 11 560,000
April 4 Sale (25,000) 11 (280,000)
Balance 25,000 11 280,000
April 10 Purchase 15,000 14 210,000
Balance 40,000 12 490,000
April 15 Sales (21,000) 12 (257,250)
Balance 19,000 12 232,750
April 17 Sales Return 1,000 12.25 12,250
Balance 20,000 245,000
April 28 Purchase 20,000 16.75 335,000
Balance 40,000 15 580,000
Inventory end = 580,000 3. (A)

Cost of goods sold (280,000 + 257,250 – 12,250) = 525,000 4. (A)

Question Nos. 5 and 6

Date First-in First-out Units Unit Cost Total Cost

April 1 20,000 10 200,000
April 2 Purchase 30,000 12 360,000
April 4 Sales From April 1 (20,000) 10 (200,000)
Sales From April 2 (5,000) 12 (60,000)
Balance 25,000 12 300,000
April 10 Purchase 15,000 14 210,000
April 15 Sales From April 2 (21,000) 12 (252,000)
Balance From April 2 4,000 12 48,000
Balance From April 10 15,000 14 210,000
April 17 Sales Return 1,000 12 12,000
Balance From April 2 5,000 12 60,000
Balance From April 10 15,000 14 210,000
April 28 Purchase 20,000 17 335,000
Balance Total Balance 40,000 605,000
Inventory End = 605,000 5. (B)

Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = 500,000 6. (B)

Question Nos. 7 and 8

Note that inventory and cost of goods sold under FIFO periodic and perpetual is the same.

7. (B) 8. (B)
12-11

Lower of Cost or Net Realizable Value

Question No. 1 Raw Materials

Supply of steel (used for motorbikes) Write-down
Cost 40,000
More profitable (as is) 25,000 15,000
Supply of aluminum (used for bicycles)
Cost 60,000
More profitable (completed product) (C) 50,000 10,000
Total write-down 25,000

Question No. 2 Work-in-process

Incomplete motorbikes Write-down
Cost 30,000
More profitable (completed product) 25,000 5,000
Incomplete bicycles
Cost 50,000
More profitable (as is) 60,000
Total write- down (D) 5,000

Question No. 3 Finished goods

Motorbikes Write-down
Cost 80,000
More profitable (completed product) 60,000 20,000
Bicycles
Cost 80,000
More profitable (completed product) (C)110,000
Total write-down 20,000

Question No. 4 Adjusted COGS

Cost of goods sold before write-down 450,000
Add: Write-down
Raw materials 25,000
Work-in-process 5,000
Finished goods 20,000 50,000
Adjusted cost of goods sold 500,000
12-12

Purchase Commitment

CASE NO. 1
11/15 No entry
12/31 Loss on purchase commitment (20,000 x [25-20]) 100,000
Estimated liability for purchase commitment 100,000

3/15 Purchases (25,000 x 25) 500,000

Estimated liability for purchase commitment 100,000
Accounts payable/Cash 500,000
Gain on purchase commitment 100,000

CASE NO. 2
11/15 No entry
12/31 No entry
3/15 Purchases (25,000 x 25) 500,000
Accounts payable/Cash 500,000

3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000) 200,000
Estimated liability for purchase commitment 200,000

4/30 Purchases 1,200,000

Estimated liability for purchase commitment 200,000
Accounts payable/Cash 1,200,000
Gain on purchase commitment 200,000
1. B 2. A
12-13

Inventory Estimation - Gross Profit Rate Method

Sales 3,400,000
Less: Sales returns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiply by: Cost ratio (1-30%) 70%
Cost of Goods sold 2,359,000
Inventory, January 1 650,000
Add: Net Purchases
Purchases 2,300,000
Add: Freight-in 60,000
Less: Purchase returns (80,000) 2,280,000
Total Goods available for sale 2,930,000
Less: Cost of goods sold (2,359,000)
Merchandise inventory that should be on hand 571,000
Less: Actual merchandise inventory on hand (420,000)
Cost of Missing inventory (A)151,000

12-14

Inventory Estimation: Average Method - Retail Method

Computation of cost ratio: Cost Retail

Inventory at January 1 250,000 375,000
Purchases 1,325,000 1,750,000
Net markups 200,000
Net markdowns (75,000)
Totals 1,575,000 2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail
Balance up to markdowns (see above computation) 2,250,000
Less: Sales (1,500,000)
Estimated normal shrinkage (1,500,000 x 5%) (75,000)
Estimated normal shoplifting losses (50,000)
Inventory end at retail 625,000
Computation of Cost of goods sold
Total goods available for sale at cost 1,575,000
Less: Inventory end at cost (625,000 x 70%) 437,500
Cost of Sales (B)1,137,500
12-15

Computation of cost ratio: Cost Retail

Purchases 292,500 400,000
Net markups 75,000
Net markdowns (25,000)
Totals 292,500 450,000
Cost ratio (292,500 / 450,000) = 65%
Computation of Inventory end at retail
Balance up to markdowns (see above computation) 450,000
Add: Inventory beginning 100,000
Less: Sales (375,000)
Inventory end at retail 175,000
Multiply: Cost ratio 65%
Inventory end at cost (A)113,750

12-17

Question No. 1
A EI over (P129-P119) x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory (C) 70,000
Question No. 2
D. Ending inventory understated (B)(140,000)
Question Nos. 3 and 4 2015 2016
Unadjusted balance 1,000,000 1,200,000
A. EI over, NI over (P129-P119) x 4,000 (40,000) 40,000
B. EI under, NI under 70,000 (70,000)
C. EI over, NI over (100,000) 100,000
D. EI under, NI under (A)930,000 140,000
Adjusted balances (C)1,410,000
Question No. 5
Unadjusted net income (1,000,000+1,200,000) 2,200,000
Less: Adjusted net income (930,000+1,410,000) (2,340,000)
Net adjustment to income-understated (D)(140,000)
12-18

Question Nos. 1 and 2 Ledger Balance Physical Count

Balances prior to adjustment 314,800 293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less: unrecorded sale (8,400)
Less: unrecorded purchase returns (6,000)
Less: goods held on consignment (8,800)
Add: unrecorded purchase 3,640
Add: Goods in transit purchased, FOB shipping point 1,600
Add: Goods out on consignment 14,800
Adjusted balances (A)307,240 (C) 304,400
Question No. 3
Adjusted balances, per ledger 307,240
Adjusted balances, physical count 304,400
Inventory shortage (B)2,840

12-19

1. Accounts Payable and related accounts

Was there a valid purchase?

Was the purchase recorded?

Were the inventories INCLUDED in the count?

2. Accounts Receivable and related accounts

Was there a valid sale?

Was the sale recorded?

Were the inventories EXCLUDED in the count?

 12-19 (continuation)

Ending Sales Purchase AP Net

Inventory Income
679 Unadjusted Balances 550,000 1,000,000 600,000 450,000 120,000
680
681
682 Purch over, COS over, NI under (46,740) (46,740) (46,740)
EI over, COS under, NI over (46,740) 46,740
683 EI over, COS under, NI over (4,500) (4,500)
684 Purch under, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 Sales over, NI over (560) (560)
EI under, NI under (560 x 70%) 392 392
312 Sales over, NI over (31,940) (31,940)
EI under, NI under (31,940 x 22,358 22,358
70%)
313 Sales over, NI over (6,350) (6,350)
EI under, NI under (6,350 x 70%) 4,445 4,445
314 Sales over, NI over (1,930) (1,930)
315 No, No, No
316 No, No, No
317 No, No, No
318 Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances (A) (A) (A) (A) (D)
525,955 959,220 554,320 404,320 100,855
 12-20

Ending Accounts Accounts Sales Net Income

Inventory Receivable Payable
Unadjusted 220,000 104,000 138,000 1,010,000 180,400
balance
A (20,000) 20,000
B (10,000) (10,000)
C 50,000 (64,000) (64,000) (14,000)
D 14,000 (16,000) (16,000) (2,000)
E (24,000) (24,000)
Adjusted (A)250,000 (C)24,000 (D)108,000 (D)930,000 (A)160,400

12-21

Inventory Accounts Accounts Net Sales Net Net Income

Payable Receivable Purchases
Unadjusted 250,000 400,000 1,000,000 4,000,000 2,500,000 600,000
balance
A
B 35,000 35,000
C 4,000 4,000 4,000
D (25,000) 40,000 40,000 15,000
E 10,000 10,000
F (30,000) (30,000) (30,000)
G 34,000 (68,000) (68,000) (34,000)
H (10,000) (10,000) (10,000)
I (90,000) (90,000)
J 60,000 60,000 60,000
Adjusted (C)368,000 (C)464,000 (A)932,000 (A)3,842,000 (D)2,564,000 (D)496,000
Balance
12-22

R/E Sales EI A/P COGS

2017 Purchases under, CGS under, NI 36,000
over, RE over
2018 Purchases over, CGS over 36,000
2017 EI under, NI under, RE under (32,000)
2018 BI under, CGS under (32,000)
Sales under (20,000)
Purchases under, CGS under (24,000)
(24,000)
EI under, CGS over (8,000) 8,000
Purchases under, CGS under (4,000) (4,000)
EI under, CGS over (4,000) 4,000
Total 4,000 (20,000) (12,000) (28,000) (12,000)
(C) (B) (B) (D) (C)
The effect of errors on December 2017 and January 2018 has no effect on the ending balance of the
accounts payable on December 31, 2018. The payable is expected to be settled before the end of
the year.
12-23

Sales (475,000/80%) 593,750 100%

Less: Cost of sales 475,000 80%
Gross profit Inventory (in units) 118,750 20%
Beg. Balance 20,000 25,000 Balance end (squeeze)
(60,000/P3) or (125,000/5)
Purchases 100,000 95,000 Cost of sales
(475,000/5)
Total 120,000 120,000
Inventory (in peso
amount)
Beg. Balance (squeeze) 60,000 125,000 Balance end (squeeze)
Purchases 540,000 475,000 Cost of sales
Total 600,000 600,000
Weighted average unit cost = TGAS (peso) / TGAS (units)

Weighted average unit cost (P600,000/120,000) = P5/unit

1. A 2. A 3. B 4. A 5. B
12-24

1
The cumulative effect on change in accounting policy on January 1, 2018 or December
31, 2015 Retained Earnings is (B), which is understatement of 100,000
the understatement of Ending Inventory on December 31, 2017.
2
Net income – weighted average 3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under (B)100,000
Adjusted net income – FIFO 3,200,000
3
Computation of units sold:
Beginning inventory – units 10,000
Add: Total purchases – units 100,000
Total goods available for sale – units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory in units 30,000
The 30,000 ending inventory comes from the last two purchases as follows:

Units Unit cost Total cost

From 4th quarter purchases 10,000 68 680,000
From 3rd quarter purchases 20,000 (B)66 1,320,000
Total 30,000 2,000,000
4
Cost (from 3.) 2,000,000
Net realizable value [(P70 – P5) x 30,000] (B)1,950,000
Loss on inventory write-down 50,000
5
Beginning inventory – FIFO 500,000
Add: Net Purchases (P6,480,000 – 980,000) 5,500,000
Total goods available for sale 6,100,000
Less: Ending inventory at cost (from 3.) 2,000,000
Cost of goods sold at cost 4,100,000
Add: Loss on inventory write-down (from 4.) 50,000
Cost of goods sold after inventory write-down (A)4,150,000
12-25

1
No. of units Unit cost Total
3,000 12 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
(10,500 - 1,000 + 3,000) = 12,000 units 12,000 (A)176,000
2
No. of units Unit cost Total
1,800 19 34,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
(4,500+700+600)=5,800 units 5,800 (A)117,400
3
T-shirts: NRV Cost Lower
Net realizable value (12,000 x (P16-(10% x P16)) 172,800 176,000 172,800
Jackets:(5,800 x (P22 -(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV 287,640 293,400 (A)287,640
4
Total cost (From 3.) 293,400
Less: Lower of cost or NRV (from 3.) 287,640
Loss on inventory write-down (B)5,760
5
Beginning inventories:
T-shirts (9,000 x P11) 99,000
Jackets (5,000 x P15) 75,000 174,000
Add:Total purchases (299,500 + 183,900) 483,400
Total goods available for sale 657,400
Less: Merchandise inventory at cost (293,400)
Cost of sales before inventory write-down 364,000
Add: Loss on inventory write-down 5,760
Cost of sales after inventory write-down (B)369,760
Total Purchases: Units Cost
T-shirts: 22,000 299,500
(4,000x12)+(3,000x12)+(2,500x13)+(3,500x14)+
(2,000x13)+(4,000x15)+(3,000x16)
Jackets: (900x16)+(1,100x18)+(1,500x19)+(2,000x19)+ 9,500 183,900
(1,800x20)+(1,200x21)+(1,000x22)
Total 483,400
12-26

Raw Materials will have same T-Accounts in all cases

Raw Materials
Beginning balance 600,000 1,200,000 Ending Balance
Net Purchases 2,200,000 1,600,000 Direct materials used
Total 2,800,000 2,800,000
Case 1
1
2015 2016 2017 2018
Gross Profit 2,000,000 3,500,000 4,000,000
Divide by: Sales 1,700,000 2,800,000 3,000,000
Gross Profit Rate 0.15 0.20 0.25 0.30
The trend of gross profit for the past three years increases by 5% each year; thus, if the trend
continues, the gross profit for 2018 will be 30%. The cost ratio then would be 70% (100% - 30%) .
Therefore, the cost of goods sold is computed as follows:

Sales 6,000,000
Multiply by: Cost Ratio 0.70
Cost of goods sold (B) 4,200,00
2
Finished Goods
Beginning balance 2,800,000 2,000,000 Ending Balance
Cost of goods manufactured 3,400,000 4,200,000 Cost of goods sold
Total 6,200,000 6,200,000
Work in Process
Beginning balance 2,000,000 (A)2,600,000 Ending Balance
Direct materials used 1,600,000 3,400,000 Cost of Goods Manufactured
Direct Labor 1,600,000
Factory overhead 800,000
Total 6,000,000 6,000,000
Computation of factory
overhead:
Direct labor cost 1,600,000
Predetermined rate 50% 800,000
CASE NO. 2:

3
2015 2016 2017 2018
Gross Profit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
Gross Profit Rate 0.17 0.18 0.25 0.20
16% + 18% + 25%
GP rate 2018 = = 0.20
3

The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods sold is computed as
follows:

6,000,000(Sales) x 0.80(cost ratio) = (B)4,800,000(Cost of Goods Sold)

4
Finished Goods
Beginning balance 2,800,000 2,000,000 Ending Balance
Cost of goods manufactured 4,000,000 4,800,000 Cost of goods sold
Total 6,800,000 6,800,000
Work in Process
Beginning balance 2,000,000 (A)2,000,000 Ending Balance
Direct materials used 1,600,000 4,000,000 Cost of goods manufactured
Direct labor 1,600,000
Factory overhead 800,000
Total 6,000,000 6,000,000
5

Case No. 3

The gross profit for 2018 is computed based on the overall gross profit for 2016 and 2017:
800,000+1,000,000
Gross Profit Rate= = 24%
3,500,000 + 4,000,000

The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods sold is computed as
follows: 6,000,000(Sales) x 0.76(cost ratio) = (A) 4,560,000(Cost of Goods Sold)

6
Finished Goods
Beginning balance 2,800,000 2,000,000 Ending Balance
Cost of goods manufactured 3,760,000 4,560,000 Cost of goods sold
Total 6,560,000 6,560,000
Work in Process
Beginning balance 2,000,000 (A)2,240,000 Ending Balance
Direct materials used 1,600,000 3,760,000 Cost of goods manufactured
Direct labor 1,600,000
Factory overhead 800,000
Total 6,000,000 6,000,000

12-27

Accounts Payable
Ending Balance 250,000 555,000 Beginning Balance
Purchase ret. And allow. 70,000 3,000,000 Purchases
Purchase discounts 80,000 100,000 Freight-in
Payments to supplier squeeze(A)3,255,000
Total 3,655,000 3,655,000
2
Direct materials inventory
Beg. Balance 200,000 320,000 Ending Balance
Net purchases 2,950,000 (A)2,830,000 Direct materials used
Total 3,150,000 3,150,000
Purchases 3,000,000
Add: Freight-in 100,000
Gross Purchases 3,100,000
Less: Purchase ret and allow 70,000
Purchase discounts 80,000
Net Purchases 2,950,000
3
Work in Process
Beg. Balance 250,000 280,000 Ending Balance
Direct materials used 2,950,000 (A)4,375,000 Cost of goods manufactured
Direct labor 900,000
Factory overhead 675,000
Total 4,655,000 4,655,000
4
Sales 5,100,000 120%
Less: Cost of sales (5,000,000/120%) (B)4,250,000 100%
Gross profit 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount does not constitute
actual return of merchandise.
5
Finished goods
Beg. Balance 400,000 525,000 Ending Balance
Cost of goods manufactured 4,375,000 4,250,000 Cost of goods sold
Total 4,775,000 4,775,000
Estimated finished goods 525,000
Less: Cost of goods out on consignment 20,000
Salvage value 10,000
Inventory fire loss (B)495,000
6 Cost of goods sold (80% x P5,100,000) = (A)4,080,000
7
Sales (5,100 ,000-100,000) 5,000,000 100%
Less: Cost of sales (80% x P5,100,000) 4,080,000 80%
Gross profit 1,000,000 20%
Finished Goods
Beg. Balance 400,000 695,000 Ending Balance
Cost of goods manufactured 4,375,000 4,080,000 Cost of goods sold
Total 4,775,000 4,775,000
Estimated finished goods 695,000
Less: Cost of goods out on consignment 20,000
Salvage value 10,000
Inventory fire loss (A)665,000
12-28

1
Accounts payable, March 31 2,370,000
Less: Payment in April 300,000
Total 2,070,000
Accounts payable for April Purchases
Total purchases 600,000
Less: Payment in April (200,000) 400,000
Total (B)2,470,000
2
Purchases, as of March 31 4,200,000
Add: Purchases in April 600,000
Gross purchases 4,800,000
Less: Purchase returns 12,000
Net purchases 4,788,000
3

Accounts Receivable
Beg. Balance 2,700,000 3,000,000 Ending Balance
Sales on account 1,488,000 938,000 Collections including recoveries
Recoveries 0 250,000 Writeoff
Net Sales 4,188,000 4,188,000
Sales as of March 31 9,040,000
April Sales 1,488,000
Less: Sales Returns 100,000 1,388,000
Net Sales (C)10,428,000
4
Net Sales 10,428,000
Multiply by: Cost ratio 60%
Cost of Sales (C)6,256,800
Cost of Sales 9,000,000 10,500,000
Divide by: Gross Profit 9,000,000 4,500,000
50% 30%
Average gross profit = (50%+30%)/2 = 40% Cost ratio = 100% - 40% = 60%
5
Estimated inventory 3,031,200
Less: Shipment in transit (40,000)
Undamaged goods at cost (120,000)
Salvage value (25,000)
Inventory fire loss (C) 2,846,200
12-29

Purchases ending
11 months 12 months
Unadjusted balance 2,700,000 3,200,000
Shipment in Nov. included in December purchases 30,000
Unsalable shipments received (4,000) (6,000)
Deposits in October shipped February (8,000) (8,000)
Deposits made vendor in November (22,000)
Adjusted balance 2,696,000 2,186,000
1. (D) 2. (D)
3
Beginning inventory January 1, 2018 350,000
Add: Purchases for 11 months (From 1.) 2,696,000
Less: Ending inventory Nov. 30, 2018 (360,000-22,000 + 20,000) 358,000
Cost of sales (A)2,688,000
Cost ratio (5,736,000 / 6,720,000) 80%
4
Sales ending December 31, 2018 3,840,000
Less: Sales ending Nov. 30, 2018 (3.4M-40,000) 3,360,000
Sales December 2018 480,000
Less: Sales at cost 40,000
Sales in December 2018 made at a profit 440,000
Multiply: Cost ratio (2,688,000 / 3,360,000) 80%
Cost of sales made at profit 352,000
Add: Cost of sales made at cost 40,000
Total Cost of Sales December (A)392,000
5
Beginning inventory Nov. 30, 2018 358,000
Add: Purchases for December (3,186,000 – 2,696,000) 490,000
Less: Cost of Sales December 392,000
Ending inventory – December 31, 2018 (A)456,000
12-30

Cost Retail
Inventory, Jan 1 300,000 1,200,000
Purchases 6,000,000 8,500,000
Purchase returns (400,000) (800,000)
Purchase discounts (150,000)
Purchase allowance (50,000)
Freight-in 20,000
Departmental Transfer-In 600,000 1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Totals 5,760,000 8,666,000
Markups 600,000
Markup cancellations (50,000)
Basis of computation (conservative) 5,760,000 9,216,000
Markdown (316,000)
Markdown cancellations 100,000
Basis of computation (average) 5,760,000 9,000,000
Cost ratios:
Conservative
Cost ratio 5,760,000 9,216,000
Average
Cost ratio 5,760,000 9,000,000
FIFO
Cost ratio 5,760,000-300,000 9,000,000-1,200,000
Estimated ending inventory at retail for all methods
Total Goods Available for Sale retail(average method) 9,000,000
Sales (7,000,000)
Sales returns 700,000
Normal Shrinkage (500,000)
Estimated ending inventory retail 2,200,000
Ending inv at cost Cost of goods sold
EI retail x cost ratio TGAS cost – EI cost
Cost method: Conservative (62.5%) 1,375,000 4,385,000
FIFO (70%) 1,540,000 4,220,000
Average (64%) 1,408,000 4,352,000
Answers: 1. A 2. B 3. B 4. C 5. C 6. D
12-31

1
Subsidiary Ledger General Ledger
Unadjusted balance 760,000 1,020,000
Undelivered sales (100,000)
Valid Sales 60,000
Sales FOB destination (100,000)
NSF check 50,000 50,000
Collection by the bank (60,000) (60,000)
Sales in 2017 recorded in 2018 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 (10,080) (10,080)
Sales in 2018 recorded in 2017 DR No. 38743 (19,200) (19,200)
Adjusted balance (D) 784,080 784,080
2
Current:
Unadjusted beginning Balance 97,500
Add: Valid Sales in 2017 (60,000 + 3,360) 63,360
Total 160,860
Less: Receivable ins. Co (DR # 38741) (10,080)
Sales in 2018 recorded in 2017 (DR # 38743) (19,200)
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (From 1.) 784,080
Less: Current Accounts Receivable balance 131,580
Past due Accounts Receivable 652,500
or (662,500+50,000-60,000) 652,500
Age classification Amount Percentage Total
Current 131,580 6% 7,894.80
Past due 652,500 10% 65,250.00
Allowance for doubtful accounts (A)73,144.80
3
Allowance for doubtful accounts, beginning 7,000
Less: Accounts written off 0
Less: Allowance for doubtful accounts, ending 73,144.80
Doubtful accounts expense (A) 66,144.80
4
Unadjusted Merchandise Inventory, ending 316,000
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332,000
5
Unadjusted Net Sales balance 3,000,000
Undelivered sales (100,000)
Sales FOB destination (100,000)
Sales in 2017 recorded in 2018 DR No. 38740 3,360
Sales in 2018 recorded in 2017 DR No. 38743 (19,200)
Adjusted balance (B) 2,784,160