ACCTG 211: Intermediate Accounting I (Practice Set on Inventories)

1. Spiderman Corporation is a merchandising entity. On March 1, 2019, Spiderman purchased

4,000 units of a highly specialized gadget from Stark Industries for a total invoice amount of
P130,000. The goods were shipped on March 4, 2019, under the terms FOB shipping point,
freight prepaid. Stark Industries paid P2,000 for the shipment while Spiderman incurred
P1,500 as payment for insurance. Spiderman also incurred a further P500 worth of delivery
cost from the dock to its warehouse. For every unit sold, Spiderman incurs P120 in selling
costs.

a. Give the total inventoriable costs.

b. Give the equivalent cost of one unit of the highly specialized gadget.

2. USKS Corporation purchased merchandise worth P184,000 on account from a supplier on

August 1, 2019 under the terms 3/15, n/60. The merchandise were received four days later.
After thorough inspection, it was found that P6,000 worth of merchandise were defective.
USKS informed the supplier of the issue and the latter issued a credit memo on August 6,
2019, recognizing the return of merchandise. USKS paid the amount due on August 12, 2019.

Additionally, on August 8, 2019, USKS sold to a customer, on account, merchandise costing

P120,000 for P200,000. The sale was executed upon terms 2/10, n/30. Two days later, the
customer communicated concerns regarding defective goods, to which USKS issued a credit
memo for merchandise with a total retail price of P4,000. The customer paid the amount due
on August 23, 2019.

a. Give the relevant journal entries under the periodic system.

b. Give the relevant journal entries under the perpetual system.

3. Pedro Company purchased merchandise on account from Penduko Corporation on

September 1, 2019. The goods have a list price of P90,000 and given trade discounts of 15%
and 10%, with payment terms set at 4/10, n/60. Provide the journal entries for purchase and
payment under each of the following independent assumptions:

a. Gross method; payment made on September 8, 2019

b. Gross method; payment made on September 20, 2019
c. Net method; payment made on September 8, 2019
d. Net method; payment made on September 20, 2019

4. The merchandise inventory account of ABC Company showed a balance of P85,000 on

December 31, 2019. As part of its verification procedures, the company conducted physical
count on its year-end item stocks.

The physical count revealed the following ending quantities for the three (3) items sold by
ABC: Item A, 220 units; Item B, 641 units; and Item C, 343 units.
 The unit costs of Items A, B, and C are P42, P94, and P50, respectively. Careful inspection
of the related documents revealed that 38 items of Item B included in the physical count
pertain to EFG Company and are only held on consignment by ABC.

a. Determine the amount of inventory shortage/overage and provide the necessary adjusting
entry (if any).

5. Thor Corporation only has one product, the Mjolnir. The following information pertain to the
month of October 2019, unless otherwise stated:

Cost of direct materials used 226,000

Cost of indirect materials used 104,000
Wages of factory workers assembling the Mjolnir 1,470,000
Salaries of security personnel in the factory 240,000
Salaries of security personnel in the main office 800,000
Salaries of security personnel in the Mjolnir store 120,000
Salary of the general manager 350,000
Electrical bill for the factory 38,600
Electrical bill for the main office 74,800
Electrical bill for the Mjolnir store 12,100
Monthly depreciation of factory building 300,000
Monthly depreciation of main office 450,000
Monthly depreciation of Mjolnir store 30,000
Insurance paid for factory building (1 year) 360,000
Delivery cost of Mjolnirs sold 28,900

Budgeted production is at 6,000 units. Actual production for the month was at 5,000 units.
Assume zero beginning inventory and that all items put in production were completed. Assume
further that 10% of production for the month remained in inventory at month-end.

a. Compute for the cost of one unit of Mjolnir.

b. Provide the journal entries for capitalizable costs during production
c. Provide the journal entries for operating expenses

6. The following data pertain to an inventory item:

Date Particulars Units Unit Cost Total Cost Sales (in units)
Jan.
1 Beginning balance 350 180 63,000
3 Sale 320

9 Purchase 550 220 121,000

12 Sale 440
14 Sales return (from 01/12 sale) -20

18 Purchase 130 210 27,300

Purchase return (from 01/18 -
21 purchase) -30 200 6,000
 Compute for the (1) value of ending inventory and (2) cost of sales under each of the following:
a. FIFO – periodic
b. FIFO – perpetual
c. Weighted average – periodic
d. Weighted average – perpetual
e. LIFO – periodic
f. LIFO – perpetual

7. The inventory items of ATOD Corporation, a manufacturing company, are shown below:

Raw materials Units Unit cost Fair value Cost to sell

Skull basher 220 600.00 1,000.00 200.00
Vanguard 310 700.00 1,050.00 250.00
Platemail 300 750.00 1,000.00 150.00
Mystic staff 250 800.00 1,100.00 350.00
Work-in-process
WIP A 150 1,000.00 1,400.00 300.00
WIP B 180 1,200.00 1,500.00 400.00
Finished goods
Abyssal blade 80 2,000.00 2,800.00 150.00
Shiva's guard 95 1,800.00 2,500.00 100.00

a. What is the total net realizable value to be shown in the Inventories account?

8. On June 1, 2019, Entity A entered into a noncancelable purchase commitment with Entity B
whereby the former would buy merchandise from the latter at a fixed contract price of
P300,000 on June 30, 2019. What would be the cost of inventories (purchases) if:

a. The replacement cost of the goods fell to P270,000 on June 30?

b. The replacement cost of the goods rose to P320,000 on June 30?

9. XYZ Corporation is a manufacturing entity. Its only product is Item A. The raw materials for
this item carry a unit cost of P40 while conversion costs are P20 per unit. The finished product
(Item A) is sold to customers for P80 each.

a. What is the gross profit rate based on sales?

b. What is the gross profit rate based on cost?
10. The following information are available for KKK Company:

Cost Retail
Beginning inventory 221,770 275,060
Net purchases 1,412,630 2,129,900
Additional markup 308,000
Markup cancelation 91,050
Markdwon 100,400
Markdown cancelation 50,200
Sales 3,852,400
Sales return 25,500
Sales allowance 15,200
Saldes discount 65,870
Employee discount 32,940
Spoilage and breakage 26,350

a. Compute for the cost of sales using the conservative cost method.
b. Compute for the cost of sales using the average cost method.