Problem 10 – 4

Summer Company is a wholesaler of car seat covers. At the beginning of the current
year, the entity’s inventory consisted of 90 car seat covers priced at P1,000 each.
During the current year, the following events occurred:

1. Purchased 800 car seat covers on account at P1,000 each.

2. Returned 50 defective car seat covers to suppliers and received credit.
3. Paid 600 of the car seat covers purchased.
4. Sold 790 car seat covers at P2,000 each.
5. Received 20 car seat covers returned by a customer and gave credit. The goods
were in excellent condition.
6. Received cash for 680 of the car seat covers sold.
7. Physical count at year-end revealed 60 units on hand.
Required:
a. Prepare journal entries, including adjustments to record the above transactions
assuming the company uses periodic system and perpetual system.
b. Determine the cost of sales under each inventory system.

Answer:
Periodic System
A.
Purchases 800,000
Accounts Payable 800,000

Accounts Payable 50,000

Purchase Returns 50,000

Accounts Payable 600,000

Cash 600,000

Accounts Receivable 40,000

Sales 40,000

Purchase Returns 1,360,000

Accounts Receivable 1,360,000

Inventory, End 60,000

Income Summary 60,000
 B.
Inventory January 1 90,000
Add: Purchases 800,000
Less: Purchase Returns (50,000) 750,000
Goods Available for Sale 840,000
Less: Inventory – End 60,000
Cost of Goods Sold P780,000

Perpetual System
A.
Inventory 800,000
Accounts Payable 800,000

Accounts Payable 50,000

Inventory 50,000

Accounts Payable 600,000

Cash 600,000

Accounts Receivable 1,580,000

Sales 1,580,000

Cost of Goods Sold 700,000

Inventory 700,000

Sales Return 40,000

Accounts Receivable 40,000

Inventory 20,000
Cost of Goods Sold 20,000

Cash 1,360,000
Accounts Receivable 1,360,000

Inventory Shortage 10,000

Inventory 10,000
B.
Cost of Goods Sold 770,000
Inventory Shortage 10,000
Adjusted Cost of Goods Sold P780,000
Problem 10 – 8
Myriad Company revealed the following purchases transactions occurred during the last
few days of the fiscal year, which ends December 31, and in the first few days after that
date.

1. An invoice P50,000, FOB shipping point, was received and recorded on

December 27. The shipment was received in satisfactory condition on
January 2. The merchandise was not included in the inventory.
2. An invoice for P75,000, FOB destination, was received and recorded on
December 28. The shipment was received in satisfactory condition on
January 3. The merchandise was not included in the inventory.
3. An invoice for P30,000, FOB shipping point, was received and recorded on
January 4. The invoice shows that the goods had been shipped on December
28 and the receiving report indicates that the goods had been received on
January 4. The merchandise was excluded from the inventory.
4. An invoice for P90,000, FOB shipping point, was received on December 15.
The receiving report indicates that the goods were received on December 18
but across the face of the report is the notation “merchandise not of the same
quality as ordered – returned for credit, December 19”. The merchandise was
included in the inventory.
5. An invoice for P140,000, FOB destination, was received and recorded on
January 4. The receiving report indicates that the goods were received on
December 29. The merchandise was included in the inventory.

Required:
Prepare the adjustments on December 31. Books are still open.

Inventory 50,000
Income Summary 50,000

Accounts Payable 75,000

Purchase 75,000

Purchases 30,000
Accounts Payable 30,000

Income Summary 90,000

Inventory 90,000

Purchases 140,000
Accounts Payable 140,000
Problem 10 – 9
Hero Company reported inventory on December 31, 2019 at P6,000,000 based on a
physical count of goods priced at cost, and before any necessary year-end adjustment
returning to the following:

 Included in the physical count were goods billed to a customer FOB

shipping point on December 31, 2019.
The goods had cost of P125,000, and were picked up by the carrier on
January 10, 2020.

 Goods shipped FOB shipping point on December 28, 2019form a

vendor to Hero Company were received on January 4, 2020. The
invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2019?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

Physical Count 6,000,000

Goods Shipped (FOB Shipping point) 3000,000
Inventory P6,300,000
Problem 10 – 10
Empty Company reported on December 31, 2019 at P2,5000,000 based on physical
count price at cost and before any necessary adjustment for the following:

 Merchandise costing P100,000, shipped FOB shipping point from a

vendor on December 30, 2019 was received and recorded on January
5, 2020.

 Goods in the shipping area were excluded from the inventory although
shipment was not made until January 5, 2020.

The goods billed to the customer FOB shipping point on December 30,
2019 had a cost ofP400,000.

What amount should be reported as inventory on December 31, 2019?

a. 2,500,000
b. 2,600,000
c. 2,900,000
d. 3,000,000

Physical Count 2,500,000

Merchandise 100,000
2,600,000
Goods in shipping area 400,000
Inventory P3,000,000
Problem 10 – 14
Kew Company reported accounts payable on December 31, 2019 at P2,200,000 before
considering the following data:

 Goods shipped Kew FOB shipping point on December 22, 2019 were lost in
transit. The invoice cost of P40,000 was not recorded by Kew.

On January 7, 2020, Kew filed a P40,000 claim against the common carrier.

 On December 27, 2019, a vendor authorized Kew to return for full credit goods
shipped and billed at P70,000 on December 15, 2019.

The returned goods were shipped by Kew on December 28, 2019. A P70,000
credit memo was received and recorded by Kew on January 5, 2020.

 On December 31, 2019, Kew has a P500,000 debit balance in accounts payable
to Ross, a supplier, resulting from a P500,000 advance payment for foods to be
manufactured.

What amount should be reported as accounts payable on December 31, 2019?

a. 2,170,000
b. 2,680,000
c. 2,730,000
d. 2,670,000

Accounts Payable per book 2,200,000

Goods shipped FOB shipping point 40,000
Purchase Returns ( 70,000)
Advance Payments 500,000
Adjusted Accounts Payable P2, 670,000
Problem 10 – 17
Audacity Company counted the ending inventory on December 31, 2019 and reported
the amount of P2,000,000 before any corrections.
None of the following items were included when the total amount of the ending inventory
was computed:

 Goods located in the entity’s warehouse are on consignment

from another entity 150,000

 Goods sold by the entity and shipped FOB destination

were in transit on December 31, 2019 and received by
the customer on January 2, 2020 200,000

 Goods purchased by the entity and shipped FOB

shipping point were in transit on December 31, 2019
and received by the entity January 2, 2020 300,000

 Goods sold by the entity and shipped FOB shipping point

were in transit on December 31, 2019 and received by the
customer on January 2, 2020 400,000

What amount of inventory should be reported on December 31, 2019?

a. 2,500,000
b. 2,350,000
c. 2,900,000
d. 2,750,000

Ending Inventory 2,000,000

Goods Sold 200,000
Goods Purchased 300,000
Inventory P2,500,000
Problem 10 – 24
Fancy Company is a wholesale distributor of automotive replacement parts. The entity
revealed the following initial amounts on December 31, 2019:

Inventory at December 31 based on physical count 1,250,000

Accounts Payable 1,000,000
Sales 9,000,000

Additional information:
A. Parts held on consignment from another entity to Fancy Company, the
consignee, amounting to P165,000, were included in the physical count on
December 31, 2019, and in accounts payable on December 31, 2019.
B. P20,000 of parts which were purchased and paid for in December 2019, were
sold in the last week of 2019 and appropriately recorded as sales of P28,000.
The parts were included in the physical count on December 31, 2019, because
the parts were on the loading dock waiting to be picked up the customers.
C. Parts in transit on December 31, 2019 to customers, shipped FOB shipping point,
on December 28, 2019, amounted to P34,000.

The customers received the parts on January 6, 2020. Sales FOB shipping point,
on December 28, 2019, amounted to P34,000.

D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on

consignment from Fancy Company, at their stores on December 31, 2019.

E. Goods were in transit from a vendor to Fancy Company on December 31, 2019.
The cost of goods was P25,000.
The goods were shipped FOB shipping point on December 29, 2019.
1. What is the correct amount of inventory?
a. 1,300,000
b. 1,320,000
c. 1,334,000
d. 1,090,000

2. What is the correct amount of accounts payable?

a. 835,000
b. 960,000
c. 975,000
d. 860,000

3. What is the correct amount of sales?

a. 9,250,000
b. 9,290,000
c. 9,040,000
d. 9,000,000

Inventory Accounts Payable Net Sales

Unadjusted 1, 250, 000 1, 000, 000 9,000 ,000

A (165, 000) (165, 000)

B (20, 000)

C 40, 000

D 210, 000

E 25, 000 25, 000

Adjusted 1, 300, 000 860, 000 9, 040, 000

Problem 11 – 1
Bronze Company had the following transactions relating to inventory during January:

Units Unit Cost

Jan. 1 Balance on hand 6000 150
5 Purchase 2000 200
10 Sale 4000
15 Sale 1000
20 Purchase 2500 300
25 Purchase 2000 400
31 Sale 3000
Determine the ending inventory under each of the following costing methods.
1. FIFO
2. Weighted average method – periodic

(1) Units Unit Cost Total Cost Sales

Jan. 1 Balance on hand 6,000 150 900,000 -
5 Purchase 2,000 200 400,000 -
10 Sale - - - 4,000
15 Sale 1,000
20 Purchase 2,500 300 750,000 -
25 Purchase 2,000 400 800,000 -
31 Sale - - - 3,000
12,500 2,850,000 8,000

Ending Inventory
Units 12, 500
Sales (8, 000)
Total 4, 500
 Units Unit Cost Total Cost
January 20 2,500 300 750,000
January 25 2,000 400 800,000
4,500 1,550,000

(2)
Units Unit Cost Total Cost
January 1 Balance on hand 6,000 150 900,000
5 Purchases 2,000 200 400,000
20 Purchases 2,500 300 750,000
25 Purchases 2,000 400 800,000
Total goods available for sale 12, 500 2,850,000

Weighted Average unit cost (2,850,000/12,500) 228

Inventory Cost (4,500 x 228) ₱1,026,000
 Problem 11 – 2
Furlough Company began operations at the beginning of current year with
10,000 units of merchandise with unit cost of P80. Purchases for the current year
follow:

Lot No. Units Unit Cost

1 2000 100
2 8000 110
3 6000 120
4 9500 100
5 14,500 90

The physical inventory revealed 15,000 units on hand at eyear-end.

Required:
Compute inventory cost at year-end and cost of goods sold for the year following
each method listed below.
1. FIFO – periodic
2. Weighted average – periodic
3. Specific identification (assuming the inventory comes from Lot 3, 6,000 units,
and Lot 4, 9,000 units)
(1)
Units Unit Cost Total Cost Sales
Beginning Inventory 10,000 80 800,000 -
1Purchase 2,000 100 200,000 -
2Purchase 8,000 110 880,000 -
3Purchase 6,000 120 20,000 -
4Purchase 9,500 100 950,000 -
5Purchase 14,500 90 1,305,000 -
Sales - - - 15,000
50,000 4,855,000 15,000

Ending Inventory
Units 50, 000
Sales (15, 000)
Total 35, 000
FIFO - Periodic
Units Unit Cost Total Cost
4 20,500 100 2,050,000
5 14,500 90 1,305,000
35,000 3,355,000
Cost of Goods Sold
Beginning Inventory 800,000
Add: Purchases 4,055,000
Total Goods Available for sale 4,855,000
Less: Ending Inventory (3,355,000)
Cost of goods sold 1,500,000
(2)
Units Unit Cost Total Cost
Beginning Inventory 10,000 80 800,000
1 Purchase 2,000 100 200,000
2 Purchase 8,000 110 880,000
3 Purchase 6,000 120 20,000
4 Purchase 9,500 100 950,000
5 Purchase 14,500 90 1,305,000
50,000 4,855,000

Weighted Average unit cost (4, 855,000/50,000) 97.1

Inventory Cost (35,000 x 97.1) ₱3,398,000
(3)
Lot 3, 6,000 x 120 720,000
Lot 4, 9,000 x 100 900,000
₱1,620,000
Problem 11 – 4
Gross Company provided the following purchases and sales for the month of March:

Units Unit Cost

March 1 Beginning 1000 270
6 Purchase 3000 250
14 Purchase 6000 280
25 Purchase 4000 210
March 9 Sale 2000
31Sale 8000
Required:
Assuming the entity used perpetual system, compute the following inventory and cost of
sales under:
1. FIFO
2. Moving average

(1)

Purchases Sales Balance

Date Units Unit Cost Total Cost Units Unit Cost Total Cost Units Unit Cost Total Cost

1 1,000 270 270,000

6 3,000 250 750,000 1,000 270 270,000

3,000 250 750,000

9 1,000 270 270,000

1,000 250 250,000 2,000 250 500,000

14 6,000 280 1,680,000 2,000 250 500,000

25 4,000 210 840,000 6,000 280 1,680,000

4,000 210 840,000

31 2,000 250 500,000

6,000 280 1,680,000 4,000 210 840,000

13,000 3,270,000 4,000 840,000

(2)

Date Units Unit Cost Total Cost

Mar. 1 Beg. Balance 1,000 270 270,000

6 Purchase 3,000 250 750,000

Balance 4,000 255 1,020,000

9 Sale (2,000) 260 (520,000)

Balance 2,000 250 500,000

14 Purchase 6,000 280 1,680,000

Balance 8,000 272.5 2,180,000

25 Purchase 4,000 210 840,000

Balance 12,000 251.67 3,020,000

31 Sale (8,000) 272. 5 (2,180,000)

Balance 4,000 210 840,000
Problem 11 – 12

Harlot Company began operations on January 1, 2019 and adopted the weighted
average method of inventory pricing.

2019 2020 2021

Sales 3,000,000 4,000,000 4,800,000
Cost of Sales 1,500,000 2,000,000 2,400,000
Gross Income 1,500,000 2,000,000 2,400,000
Expenses 800,000 900,000 1,000,000
Net Income 700,000 1,100,000 1,400,000

Comparative Inventory Amount

Weighted average FIFO
December 31, 2019 270,000 420,000
December 31, 2020 300,000 500,000
December 31, 2021 380,000 650,000

Required:
Revise the condensed comparative income statement, assuming the entity used FIFO
method.
2019 2020 2021
Cost of Sales – Average 1,500,000 2,000,000 2,400,000
Understatement
2019 (150,000) 150,000 -
2020 (200,000) 200,000 -
2021 (270,000)
1,350,000 1,950,000 2,330,000
Sales 3,000,000 4,000,000 4,800,000
Cost of Sales – FIFO 1,350,000 1,950,000 2,330,000
Gross Income 17,650,000 2,050,000 2,470,000
Operating Expenses (800,000) (900,000) (1,000,000)
Operating Income 850, 000 1,150,000 1,470,000

Net Income – Average 7,000,000 1,100,000 1,400,000

Understanding of Ending
Inventory:
2019 150,000 (150,000) -
2020 - 200,000 (200,000)
2021 - - 270,000
Net Income - FIFO 850,000 1,150,000 1,470,000
Problem 11 – 13
Rocky Company provided the following inventory data for January:

Units Units Cost

January 1 Balance 500 500
9 Purchase 1500 540
29 Purchase 500 600

Required:
Compute the cost of ending inventory under FIFO and determine the cost of goods
under average method.

Units Unit Cost Total Cost Sales

January 1 Balance 500 500 250,000
9 Purchase 1,500 540 810,000
29 Purchase 500 600 300,000
31 Sales 750
2,500 1,360,000 750
Ending Inventory
(2,500 – 750 = 1, 750)

FIFO – Periodic
Units Unit Cost Total Cost
January 9 1,250 540 675,000
January 29 500 600 300,000
1,750 975,000
Weighted Average unit cost (1,360,000/2,500) 544
Inventory Cost (1,750 x 544) ₱952,000

Cost of Goods Sold

Beginning Inventory ₱250,000
Add: Purchases 1,110,000
Total Goods Available for sale 1,360,000
Less: Ending Inventory (952,000)
408,000
Problem 11 – 14
Landmark Company purchased a tract of unimproved land for P26,850,000. The land
was improved and subdivided into residential lots at a cost of P43,500,000
These lots were all of the same size ut owing to differences in location were offered for
sale at different prices as follows:

Group No. of Lots Sales price per lot

1 20 3,000,000
2 10 2,500,000
3 10 2,000,000
Lots unsold at the end of the year are:
Group 1 5 lots
Group 2 4 lots
Group 3 3 lots

Required:
Compute the cost of unsold lots at the end of the year
Group Sales Price Fraction Cost
1 20 x 3,000,000 60,000,000 60/105 40,200,000
2 10 x 2,500,000 25,000,000 25/105 16,750,000
3 10 x 2,000,000 20,000,000 20/105 13,400,000
105,000,000 70,350,000

Group Cost per lot Unsold Cost

1 40,200,000/2 2,010,000 5 10,050,000
2 16,750,000/10 1,675,000 4 6,700,000
3 13,400,000/10 1,340,000 3 4,020,000
20,770,000
Problem 11 – 16
Massive Company provided the following information for the current year:

Units Unit Cost Total cost

January 1 Inventory on hand 200 1500 300,000
April 3 Purchase 300 1750 525,000
October 1 Purchase 500 2000 1,000,000
` 1000 1,825,000

The entity sold 400 units on June 25 and 400 on December 10. What is the weighted
average cost of the inventory at year-end?
a. 350,000
b. 400,000
c. 730,000
d. 365,000

Sales

June 25 400

Dec. 10 400

800

Ending Inventory
1000
800
200

Weighted Average unit cost (1, 825,000/1,000) 1,825

Inventory Cost (200 x 1,825) P 365,000
Problem 11 – 17
Jailbird Company provided the following data about the inventory for the month of
January:
Units Unit Cost Total Cost
Jan 1Beginning 16,000 140 2,240,000
5Purchase 4,000 150 600,000
10 Sale 15,000
15Purchase 20,000 160 3,200,000
16P.Return 1,000 160 160,000
25 Sale 8,000
26 S. Return 4,000
31 Purchase 30,000 150 4,500,000

What is the moving average cost of the inventory on January 31?

a. 7,625,000
b. 7,500,000
c. 7,690,000
d. 7,530,000

Date Units Unit Cost Total Cost

Jan. 1 Beg. Balance 16,000 140 2,240,000

5 Purchase 4,000 150 600,000

Balance 20,000 142 2,840,000

10 Sale (15,000) 142 (2,130,000)

Balance 5,000 142 710,000

15 Purchase 20,000 160 3,200,000

Balance 25,000 156.4 3,910,000

16 Purchase Return (1,000) 160 (160,000)

Balance 24,000 156.25 3,750,000

20 Sale (8,000) 156.25 1,250,000

Balance 16,000 156.25 2,500,000
26 Sales Return 4,000 156.25 625,000
Balance 20,000 156.25 3,125,000
31 Purchase 30,000 150 4,500,000
Balance 50,000 152.5 7,625,000