Problem 1

Listed below are some items of inventory from Anecito Company that are in question
during the audit. The company stores a substantial portion of the merchandise in a
separate warehouse and transfer damaged goods to a special inventory account.

1.Items in receiving department returned by customer, no

communication received from customer 20,000
2. Items ordered and in receiving department,
invoice not yet received from supplier 50,000
3. Items counted in warehouse by the inventory crew 70,000
4. Invoice received for goods ordered, goods shipped but not received
(Anecito Company pays freight) 5,000
5. Items, shipped today, fob destination, invoice mailed to customer 5,000
6. Items currently used for window displays 10,000
7. Items on counter for sale per inventory count [not in (3)] 90,000
8. Items in shipping department, invoice not mailed to customer 6,000
9. Items in receiving department, refused by Anecito
because of Damage [(not in (3)] 3,000
10. Items shipped today, fob shipping point,
invoice mailed to customer 4,000
11. Items included in warehouse count, damaged, not returnable 8,000
12. Items included in warehouse count, specifically crafted and
segregated for shipment to customer in five days per sales contract,
with return privilege 18,000

What is the amount of inventory at year end?

Problem 2
The Anda Company is on a calendar year basis. The following data were found during
your audit:
a. Goods in transit shipped FOB destination by a supplier, in the amount of
P100,000, had been excluded from the inventory, and further testing revealed
that the purchase had been recorded.
b. Goods costing P50,000 had been received, included in inventory, and recorded
as a purchase. However, upon your inspection the goods were found to be
defective and would be immediately returned.

c. Materials costing P250,000 and billed on December 30 at a selling price of

P320,000, had been segregated in the warehouse for shipment to a
customer. The materials had been excluded from inventory as a signed purchase
order had been received from the customer. Terms, FOB destination.

d. Goods costing P70,000 was out on consignment with Hermie Company. Since
the monthly statement from Hermie Company listed those materials as on hand,
the items had been excluded from the final inventory and invoiced on December
31 at P80,000.

e. The sale of P150,000 worth of materials and costing P120,000 had been shipped
FOB point of shipment on December 31. However, this inventory was found to
be included in the final inventory. The sale was properly recorded in 2005.

f. Goods costing P100,000 and selling for P140,000 had been segregated, but not
shipped at December 31, and were not included in the inventory. A review of the
customer’s purchase order set forth terms as FOB destination. The sale had not
been recorded.

g. Your client has an invoice from a supplier, terms FOB shipping point but the
goods had not arrived as yet. However, these materials costing P170,000 had
been included in the inventory count, but no entry had been made for their
purchase.
 h. Merchandise costing P200,000 had been recorded as a purchase but not included
as inventory. Terms of sale are FOB shipping point according to the supplier’s
invoice which had arrived at December 31.

Further inspection of the client’s records revealed the following December 31,
2006 balances:
Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2,300,000; Net income,
P510,000.

Based on the above and the result of your audit, determine the adjusted balances
of following as of December 31, 2006:

1. Inventory
2. Accounts payable
3. Net sales
4. Net purchases
5. Net income

Problem 3
On November 15, 2017, Philippine Airlines entered in to a noncancelable commitment
to purchase 3,000 barrels of aviation fuel for P9,000,000 on March 31,2018. Philippine
Airways entered into purchase commitment to protect itself against the volatility in the
aviation fuel had fallen to P2,200 per barrel. However, by March 31, 2018, when
Philippine Airways too delivery of the 3,000 barrels, the price of aviation fuel had risen
to P3,100 per barrel.

Based on the above and the result of your audit, answer the following:

1. How much is the loss on purchase commitment on December 31, 2017?

2. How much is the gain on purchase commitment on March 31, 2018?

Problem 4
DJ Company is on a calendar year basis. The following data were found during your
audit:
a. Goods in transit shipped FOB destination by a supplier, in the amount of P100,
000, had been excluded from the inventory, and further testing revealed that the
purchase had been recorded.
b. Goods costing P50,000 had been received, included in inventory, and recorded
as purchase. However, upon your inspection the goods were found to be defective
and would be immediately returned.
c. Materials costing P250,000 and billed on December 30 at a selling price of P320,
000, had been segregated in the warehouse for shipment to a customer. The
materials had been excluded from inventory as a signed purchase order had been
received from the customer. Terms, FOB Destin ation.
d. Goods costing P70,000 was out on consignment with Hermie Company. Since the
monthly statement from Hermie Company listed those materials as on hand, the
items had been excluded from the final inventory and invoiced on December 31
at P80,000.
e. The sale of P150,000 worth of materials and costing P120, 000 and been shipped
FOB point of shipment on December 31. However, this inventory was found to be
included in the final inventory. The sale was properly recorded in 2018.
f. Goods costing P100,000 and selling for P140, 000 had been segregated, but not
shipped at December 31, and were not included in the inventory. A review of the
customer’s purchase order set forth terms as FOB destination. The sale had not
been recorded.
g. Your client has an invoice from a supplier, terms FOB shipping poit but the goods
had not arrived as yet. However, these materials costing P170,000 had been
included in the inventory count, but no entry had not been made for their
purchase.
 h. Merchandise costing P200,000 had been recorded as a purchase but not included
as inventory. Terms of sale are FOB shipping point according to the supplier’s
invoice which had arrived at December 31.

Further inspection of the client’s records revealed the following December 31, 2018
balances: Inventory, P1,100,000; Accounts receivable, P580, 000; Accounts payable,
P690,000; Net sales, P5,050,000; Net purchases, P2, 300, 000; Net income, P510, 000.

Based on the above and the result of your audit, determine the adjusted balance as of
December 31, 2018:

1. Inventory
2. Accounts Payable
3. Net sales
4. Net Income

Problem 5
Balungao Company engaged you to examine its books and records for the fiscal year
ended June 30, 2006. The company’s accountant has furnished you not only the copy
of trial balance as of June 30, 2006 but also the copy of company’s balance sheet and
income statement as at said date. The following data appears in the cost of goods sold
section of the income statement:

Inventory, July 1, 2005 P 500,000

Add Purchases 3,600,000
Total goods available for 4,100,000
sale 700,000
Less Inventory, June 30,
2006
Cost of goods sold P3,400,000

The beginning and ending inventories of the year were ascertained thru physical count
except that no reconciling items were considered. Even though the books have been
closed, your working paper trial balance show all account with activity during the
year. All purchases are FOB shipping point. The company is on a periodic inventory
basis.
In your examination of inventory cut-offs at the beginning and end of the year, you took
note of the following:
July 1, 2005
a. June invoices totaling to P130,000 were entered in the voucher register in
June. The corresponding goods not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July but the
goods received during June
June 30, 2006
c. Invoices with an aggregate value of P186,000 were entered in the voucher register
in July, and the goods were received in July. The invoices, however, were date June.
d. June invoices totaling P74,000 were entered in the voucher register in June but
the goods were not received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in
June) were entered the voucher register, July.
f. Sales on account in the total amount of P176,000 were made on June 30 and the
goods delivered at that time. Book entries relating to the sales were made in June.

Based on the above and the result of your cut-off test, compute the following
1. Adjusted Inventory as of July 1, 2005
2. Adjusted purchases for the fiscal year ended June 30, 2006
3. Adjusted Inventory as of June 30, 2006
4. adjusted Cost of Goods Sold for the fiscal year ended June 30, 2006
Problem 6
Kitkat Company operates a wholesale oil products company. Kitkat believes that an
employee and a customer are conspiring to steal gasoline. The employee records sales
to the customer not less than the amount actually placed in the customer’s tank truck.
In order to confirm or refuse these suspicions, Kitkat has collected the following data
for the past 10 working days.

Quantity Cost per Unit Total

(gallons) (gal) Cost
Inventory, Sept. 1 220,000 P 1.45 P 319,000
Purchases 1,560,000 1.45 2,262,000
Goods available for sale P1, 780, 000 P 2,581,000

Kitkat had sales of P2,512,000 during this 10-day period. All sales were made at P1.60
per gallon. A physical inventory indicates that there are 192,000 gallons of gasoline in
inventory at the close of business on September 10.

1. How much inventory should be present at the end of the 10-day period (in
gallons)?
2. What is the cost of missing inventory?

Problem 7
In conducting your audit of Ma. Angela Corporation, a company engaged in import and
wholesale business, for the fiscal year ended June 30, 2018, you determined that its
internal control system was good. Accordingly, you observed the physical inventory at
an interim date, May 31, 2018 instead of at June 30, 2018.

You obtained the following information from the company’s general ledger

Sales for eleven months ended May 31, 2018 P1,344,000

Sales for the fiscal year ended June 30, 2018 1,536,000
Purchases for eleven months ended May 31, 2018
(before audit adjustments) 1,080,000
Purchases for the fiscal year ended June 30, 2018 1,280,000
Inventory, July 1, 2017 140,000
Physical inventory, May 31, 2018 220,000

Your audit disclosed the following additional information.

(1) Shipments costing P12,000 were received in May and included in the physical
inventory but recorded as June purchases.

(2) Deposit of P4,000 made with vendor and charged to purchases in April 2018. Product
was shipped in July 2018.

(3) A shipment in June was damaged through the carelessness of the receiving
department. This shipment was later sold in June at its costs of P16,000.

In audit engagements in which interim physical inventories are observed, a frequently

used auditing procedure is to test the reasonableness of the year-end inventory by the
application of gross profit ratios. Based on the above and the result of your audit, you
are to provide the answers to the following:

1. The gross profit ratio for eleven months ended May 31, 2018
2. The cost of goods sold during the month of June, using the gross profit ratio
method
3. The June 30, 2018 inventory using the gross profit method
Problem 8
Data for the December manufacturing cost of AJ Company, a VAT registered company
as follows:
Variable cost:
 3 labor hours (@ P3 per hour) and
 I kg. of raw materials X (@ P2.24 per kg. including VAT)

Fixed Cost:
 Budgeted Fixed Manufacturing cost P 100, 000
 Normal Expected production (units) 100, 000
Based on the above data, answer the following:
1. Assume the actual production is 100, 000 units, how much should the finished
goods be recorded?
2. Assume the actual production is 120, 000 units, how much should the finished
goods be recorded?
3. Assume the actual production is 80, 000 units, how much should the finished
goods be recorded?

Problem 9
A bookkeeper has provided you with the following information regarding inventory on
hand at December 31, 2018, used in the manufacture of two product lines: motorbikes
and bicycles:
Cost NRV: if sold NRV: if sold as a
‘as is’ completed
product
Raw materials: P 100,000 P 45,000 P 65,000
Supply of steel (used for 40,000 25,000 15,000
motorbikes)
Supply of aluminum (used for 60,000 20,000 50,000
bicycles)

Work-in-process: 80,000 80,000 65,000

Incomplete motorbikes 30,000 20,000 25,000
Incomplete bicycles 50,000 60,000 40,000

Finished Goods: 160,000 - 170,000

Motorbikes 80,000 - 60,000
Bicycles 80,000 - 110,000
Total 340,000
The lifecycle of both product lines is coming to an end and the company has decided
that where it is more profitable to sell a class of inventory such as raw materials ‘as is’
than to convert it into the finished products, then the class of inventory will be sold ‘as
is’. Cost of sales before any adjustments to the cost of inventory was P450,000.

Based on the above data, answer the following:

1. How much is the inventory write down for the raw materials?
2. How much is the inventory write down for the work-in-process?
3. How much is the inventory write down for the finished goods?
4. How much is the adjusted cost of sales?

Problem 10
Maylene Co. purchases $100,000 of raw materials from a supplier in America. The
following are the spot rates (rates of exchange on a particular date):
Date PHP: $1
January 1, 2018 P 45: $1
February 15, 2018 P 45.625: $1
March 15, 2018 P 46.875: $1
The goods are loaded onto the ship in New York on January 1, 2018 and are released
from the Bureau of Customs at the Port Area, Manila City on February 15, 2018. The
company pays the American supplier on March 15, 2018.

1. Compute for the cost of inventory and the foreign exchange gain or loss assuming
the goods are purchased FOB:
2. Compute for the cost of inventory and the foreign exchange gain or loss assuming
the goods are purchased CIF: