Intermediate Accounting (Non-Financial Assets)

Inventory

Problem 26 – (1-15)

Aman Company provided the following data:

Items included in the bodega 4,000,000
Items included in the count specifically segregated per
sale contract 100,000
Items in receiving department, returned by customer, in
good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not received.
Freight is on account of seller. 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused because of damage 180,000
Items included in count, damaged and unusable 50,000
Items in the shipping department 250,000
What is the correct amount of inventory?

Lunar Company included the following items in inventory:

Materials 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 2,000,000
Finished goods in entity-owned retail store, including
50% profit on cost 750,000
Finished goods in hands of consignees including
40% profit on sales 400,000
Finished goods in transit to customers, shipped FOB
destination at cost 250,000
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point,
excluding freight of P30,000 330,000
Goods held on consignment, at sales price, cost P150,000 200,000
What is the correct amount of inventory?
Ram Company provided the following information at the end of
current year:
Finished goods in storeroom, at cost, including overhead
of P400,000 or 20% 2,000,000
Finished goods in transit, including freight charge of
P20,000, FOB shipping point 250,000
Finished goods held by salesmen, at selling price,
Cost, P100,000 140,000
Goods in process, at cost of materials and direct labor 720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective materials returned to suppliers 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000
Machine lubricants 60,000

What is the correct amount of inventory?

Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on vendors’ invoices 5,000,000
Trade discounts on purchases already deducted from
vendors’ invoices 500,000
Import duties 400,000
Freight and insurance on purchases 1,000,000
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
After-sales warranty costs 250,000
What is the total cost of purchases?
Corolla Company incurred the following costs:
Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000
At what amount should the inventory be measured?

At year-end, Kerr Company purchased goods costing P500,000 FOB

destination. These goods were received at year-end. The costs
incurred in connection with the sale and delivery of the goods
were:
Packaging for shipment 10,000
Shipping 15,000
Special handling charges 25,000

What total cost should be included in inventory?

Stone Company had the following transactions during December:

Inventory shipped on consignment to Beta Company 1,800,000
Freight paid by Stone 90,000
Inventory received on consignment from Alpha Company 1,200,000
Freight paid by Alpha 50,000
No sales of consigned goods were made in December.
What amount should be included in inventory on December 31?

On October 1, 2018, Grimm Company consigned 40 freezers

to Holden Company costing P14,000 each for sale at P20,000
each and paid P16,000 in transportation costs.
On December 30, 2018, Holden Company reported the sale of
10 freezers and remitted P170,000. The remittance was net of
the agreed 15% commission.
What amount should be recorded as consignment sales
revenue for 2018?

A
 On December 1, 2018, Alt Department Store received 505
sweaters on consignment from Todd. Todd’s cost for the
sweaters was P800 each, and they were priced to sell at
P1,000.
Alt’s commission on consigned goods is 10%. On December
31, 2018, 5 sweaters remained.
On December 31, 2018, what amount should be reported as
payable for consigned goods?

Clem Company provided the following for the current year:

Central Held by
warehouse consignees
Beginning inventory 1,100,000 120,000
Purchases 4,800,000 600,000
Freight in 100,000
Transportation to consignees 50,000
Freight out 300,000 80,000
Ending inventory 1,450,000 200,000
What is the cost of goods sold for the current year?
Venice Company included the following in inventory at year-end:
Merchandise out on consignment at sales price,
including 30% markup on sales 1,500,000
Goods purchased in transit, shipped FOB shipping point 1,200,000
Goods held on consignment by Venice 900,000
At what amount should the inventory be reduced?

Dean Sportswear regularly buys sweaters from Mill Company

and is allowed trade discounts of 20% and 10% from the list
price.
Dean made a purchase during the year and received an
invoice with a list price of P600,000, a freight charge of
P15,000 and payment terms of 2/10, n/30.
What is the cost of the purchase?

On June 1, 2018, Pitt Company sold merchandise with a list price

of P5,000,000 to Burr on account. Pitt allowed trade discounts of
30% and 20%.
On June 11, 2018, the customer paid in full.
Credit terms were 2/10, n/30 and the sale was made FOB
shipping point. Pitt prepaid P200,000 of delivery costs for Burr as
an accommodation.
What amount should be reported as sales revenue?
What amount was received by Pitt from Burr as remittance in
full?

On August 1, Stella Company recorded purchases of inventory

of P800,000 and P1,000,000 under credit terms of 2/15, net
30.
The payment due on the P800,000 purchase was remitted on
August 16. The payment due on the P1,000,000 purchase was
remitted on August 31.
Under the net method and the gross method, these purchases
should be included at what respective amounts in the
 determination of cost of goods available for sale?

Rabb Company records purchases at gross amount but wishes to

change to recording purchases net of purchase discount. Discounts
available on purchases for the current year amount to P20,000. Of this
amount, P2,000 is still available in the accounts payable balance.
The balances in the accounts on December 31 before conversion are:
Purchases 1,000,000
Purchase discount taken 8,000
Accounts payable 300,000

What is the balance of accounts payable on December 31 after the

conversion?

Wine company recorded purchases at net amount. On

December 10, the entity purchased merchandise on account,
P4,000,000 terms 2/10, n/30. The entity returned P300,000 of
the December 10 purchase and received credit on account.
The account had not been paid on December 31.
At what amount should accounts payable be adjusted on
December 31?

Problem 27 – (1-9)

Hero Company reported inventory on December 31, 2018 at

P6,000,000 based on a physical count of goods priced at cost and
before any necessary year-end adjustments relating to the following:
 Included in the physical count were goods billed to a customer
FOB shipping point on December 30, 2018. These goods had a
cost of P125,000 and were picked up by the carrier on January 7,
2019.
 Goods shipped FOB shipping point on December 28, 2018, from
a vendor to Hero were received and recorded on January 4,
2019. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2018?
Colombia Company reported the December 31, 2018 inventory at
P2,500,000. The entity revealed the following transactions:
 Goods shipped to the entity FOB destination on December 26,
2018 were received on January 2, 2019. The invoice cost of
P300,000 is included in the preliminary inventory balance.
 At year-end, the entity held P250,000 of merchandise on
consignment from another entity. This merchandise is included
in the preliminary inventory balance.
 On December 29, 2018 merchandise costing P100,000 was
shipped to a customer FOB shipping point and arrived at the
customer location on January 3, 2019. The merchandise is not
included in the preliminary inventory balance.
 At year-end, the entity had merchandise costing P150,000 out
on consignment with another entity. The merchandise is not
included in the preliminary inventory balance.
What amount should be reported as inventory on December 31,
2018?

Reverend Company conducted a physical count on December

31, 2018 which showed inventory with a total cost of
P5,000,000.
However, further investigation revealed that the following
items were excluded from the account:
 Goods sold to customer which are being held for the
customer to call at the customer’s convenience with a
cost of P200,000.
 A packing case containing product costing P500,000
standing in the shipping room was not included in the
physical count because it was marked “hold for shipping
instructions”.
 Goods in process costing P300,000 held by an outside
processor for further processing.
 A special machine costing P250,000, fabricated to order
for a customer, was finished and specifically segregated
at the back part of the shipping room on December 31,
2018.
The customer was billed on the that date and the machine
was excluded from inventory although it was shipped on
 January 2, 2019.
What is the correct amount of inventory on December 31,
2018?

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Baritone Company counted and reported the ending inventory on

December 31, 2018 at P2,000,000.
None of the following items were included when the total amount of
the ending inventory was computed:
Goods located in the entity’s warehouse that are on
consignment from another entity 150,000
Goods sold by the entity and shipped FOB destination
were in transit on December 31, 2018 and received
by the customer on January 2, 2019 200,000
Goods purchased by the entity and shipped FOB seller
were in transit on December 31, 2018 and
received by the entity on January 2, 2019 300,000
Goods sold by the entity and shipped FOB shipping point
were in transit on December 31, 2018 and received
by the customer on January 2, 2019 400,000
What is the correct amount of inventory on December 31, 2018?

Joy Company conducted a physical count on December 31, 2018

which revealed inventory with a cost of P4,410,000.
The following items were excluded from the physical count:
Merchandise held by Joy on consignment 610,000
Merchandise shipped by Joy FOB destination to a
customer on December 31, 2018 and was received
by the customer on January 5, 2019 380,000
Merchandise shipped by Joy FOB shipping point to a
customer on December 31, 2018 and was received
by the customer on January 5, 2019 460,000
Merchandise shipped by a vendor FOB destination on
December 31, 2018 was received by Joy on
January 5, 2019 830,000
Merchandise purchased FOB shipping point was shipped
by the supplier on December 31, 2018 and received
by Joy on January 5, 2019 510,000
What is the correct amount of inventory on December 31, 2018?

Black Company reported accounts payable on December 31,

2018 at P4,500,000 before any necessary year-end
adjustments relating to the following transactions:
 On December 27, 2018, Black wrote and recorded
checks to creditors totaling 2,000,000 causing an
overdraft of P500,000 in Black’s bank account on
December 31, 2018. The checks were mailed on January
10, 2019
 On December 28, 2018, Black purchased and received
goods for P750,000, terms 2/10, n/30. Black records
purchases and accounts payable at net amount. The
invoice was recorded and paid January 3, 2019.
 Goods shipped F.O.B destination on December 20, 2018
from a vendor to Black were received January 2, 2019.
The invoice cost was P325,000.
On December 31, 2018, what amount should be reported as
accounts payable?
 Kew Company reported accounts payable on December 31, 2018 at P2,200,000
before considering the following data:
 Goods shipped to Kew FOB shipping point on December 22, 2018, were lost in
transit. The invoice cost of P40,000 was not recorded by Kew. On January 7,
2019, Kew filed a P40,000 claim against the common carrier.
 On December 27, 2018, a vendor authorized Kew to return, for full credit,
goods shipped and billed at P70,000 on December 3, 2018. The returned goods
were shipped by Kew on December 28, 2018. A P70,000 credit memo was
received and recorded by Kew on January 5, 2019.
 On December 31, 2018, Kew has a P500,000 debit balance in accounts payable
to Ross, a supplier, resulting from a P500,000 advance payment for goods to
be manufactured.
What amount should be reported as accounts payable on December 31, 2018?

Ashwood Company reported accounts payable on December 31,

2018 at P900,000 before any necessary year-end adjustments
relating to the following:
 Goods were in transit from a vendor to Ashwood on
December 31, 2018. The invoice cost was P50,000 and the
goods were shipped FOB shipping point on December 29,
2018. The goods were received on January 4, 2019.
 Goods shipped FOB shipping point on December 20, 2018
from a vendor to Ashwood were lost in transit.
The invoice cost was P25,000. On January 5, 2019, Ashwood
filed a P25,000 claim against the common carrier.
 Goods shipped FOB destination on December 21, 2018 from
a vendor to Ashwood were received on January 6, 2019. The
invoice cost was P15,000.
What amount should be reported as accounts payable on
December 31, 2018?

Bakun Company began operations late in 2017. For the first quarter
ended March 31, 2018, the entity provided the following information:
Total merchandise purchased through March 15, 2018
recorded at net 4,900,000
Merchandise inventory on January 1, 2018, at selling price 1,500,000

All merchandise was acquired on credit and no payments have been

made on accounts payable since the inception of the entity.
All merchandise is marked to sell at 50% above invoice cost before time
discounts of 2/10, n/30. No sales were made in 2018.
What amount of cash is required to eliminate the current balance in
accounts payable?

Problem 28 – (1-9)

Lewis Company’s usual sales terms are net 60 days, FOB shipping
point. Sales, net of returns and allowances, totaled P9,200,000 for
the year ended December 31, 2018, before year-end adjustments.
 On December 27, 2018, Lewis authorized a customer to
return for full credit, goods shipped and billed at P200,000 on
December 15, 2018. The returned goods were received by
Lewis on January 4, 2019, and a P200,000 credit memo was
issued and recorded on the same date.
 Goods within an invoice amount of P300,000 were billed and
recorded on January 3, 2019. The goods were shipped on
December 30, 2018.
 Goods with an invoice amount of P400,000 were billed and
recorded on December 30, 2018. The goods were shipped on
January 3, 2019.
 On January 5, 2019, a customer notified Lewis that goods
billed and shipped on December 21, 2018 were lost in transit.
The invoice amount was P500,000.
What is the correct amount of net sales for 2018?
On December 15, 2018, Bagani Company sold 20,000 units at
P250 per unit or a total of P5,000,000. The entity granted the
customers a right to return within 30 days if not satisfied and
will receive either a full refund if cash was already paid or a
full credit for the amount owed to the entity.
It estimated that 6% of the units sold will be returned within
the 30-day period. The cost for each unit is P175. The entity
uses the perpetual method.
a. Prepare the journal entries on December 15, 2018.
b. What amount of sales revenue should be recognized on
December 15, 2018?
c. What amount of refund liability should be recorded on
December 15, 2018?
d. What is the cost of recover asset on December 15, 2018?
e. What amount of cost of goods sold should be reported on
December 15, 2018?

Fenn Company had sales of P5,000,000 during December.

Experience had shown that merchandise equaling 7% of sales
will be returned within 30 days and an additional 3% will be
returned within 90 days.
Returned merchandise is readily resalable. In addition,
merchandise equaling 15% of sales will be exchanged for
merchandise of equal or greater value.
What amount should be reported for net sales in the income
statement for the month of December?
Marie Company, a distributor of machinery, bought a machine
from the manufacturer in November 2018 for P10,000. On
December 30, 2018, the entity sold this machine for P15,000
under the following terms: 2% discount if paid within thirty
days, 1% discount if paid after thirty days but within sixty
days, or payable in full within ninety days if not paid within
the discount periods.
However, the customer had the right to return this machine if
it was unable to resell the machine before expiration of the
ninety-day payment period, in which case customer’s
obligation would be canceled.
In the net sales for the year ended December 31, 2018, what
amount should be included for the sale of this machine?

On October 1, 2018, Acme sold 100,000 gallons of heating oil to

Karn Company at P30 per gallon. Fifty thousand gallons were
delivered on December 15, 2018, and the remaining 50,000
gallons were delivered on January 15, 2019.
Payment terms were: 50% due on October 1, 2018, 25% on the
first delivery, and the remaining 25% due on the second delivery.
What amount of revenue should be recognized from the sale
during 2018?

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Illustration - FIFO
The following data pertain to an inventory item:
Units Unit cost Total cost Sales in units
Jan. 1 Beginning bal. 800 200 160,000
8 Sale 500
18 Purchase 700 210 147,000
22 Sale 800
31 Purchase 500 220 110,000
The ending inventory is 700 units
Prepare the Statement of Cost of Goods Sold under periodic and perpetual system.

Inventory – January 1 160,000

Purchases 257,000
Goods available for sale 417,000
Inventory – January 31 (152,000)
Cost of goods sold 265,000

Illustration – Weighted average

The following data pertain to an inventory item:
Units Unit cost Total cost Sales in units
Jan. 1 Beginning bal. 800 200 160,000
8 Sale 500
18 Purchase 700 210 147,000
22 Sale 800
31 Purchase 500 220 110,000
The ending inventory is 700 units
How much is the cost of goods sold under periodic and perpetual system, respectively?
 Marsh Company had 150,000 units of product A on hand at January 1,
costing P21 each.
Purchases of product A during the month of January were:
Units Unit cost
January 10 200,000 22
18 250,000 23
28 100,000 24

A physical count on January 31 shows 250,000 units of product A on hand.

What is the cost of the inventory on January 31 under the FIFO method?

The following information has been extracted from the records about one
product:
Units Unit cost Total cost
Jan. 1 Beginning balance 8,000 70.00 560,000
T
6 Purchase 3,000 70.50 211,500
Units Unit cost Total cost
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 8 Purchase return 800 73.50 58,800
Apr. 10 Sale 7,000
Apr. 30 Sales return 300
If the FIFO cost flow method is used, what is the cost of the inventory at April 30?

I
Mildred Company is a wholesaler of office supplies. The FIFO periodic inventory
is used. The entity provided the following activity for inventory of calculators
during the month:
Units Total cost
Aug. 1 Inventory 20,000 36.00
7 Purchase 30,000 37.20
12 Sale 36,000
21 Purchase 48,000 38.00
22 Sale 38,000
29 Purchase 16,000 38.60
What is the ending inventory on August 31?
Lagoon Company accumulated the following data for the current year.
Raw materials – beginning inventory 90,000 units @ P7.00
Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50
The entity transferred 195,000 units of raw materials to work in
process during the year.
Work in process – beginning inventory 50,000 units @ P14.00
Direct labor 3,100,000
Manufacturing overhead 2,950,000
Work in process – ending inventory 48,000 units @ P15.00
The entity used the FIFO method for valuing inventory.
What is the cost of raw materials used?
What is the total manufacturing cost?
What is the cost of goods manufactured for the current year?

Hiltop Company sells a new product. During a move to a new location,

the inventory records for the product were misplaced. The entity has
been able to gather some information from the purchases and sales
records. The July purchases were as follows:
Quantity Unit cost Total cost
July 5 10,000 65 650,000
10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000
On July 31, 17,000 units were on hand.
The sales for July amount to P6,000,000, or 60,000 units at P100 per
unit. Gross profit on sales for July was P2,400,000.
The entity has always used a periodic FIFO inventory costing system.
What is the cost of the inventory on July 31?
What is the cost of inventory on July 1?
What is the number of units available for sale on July 1?

Lane Company provided the following inventory card during February:

Purchase Units Balance
Price Units Used Units
Jan. 10 100 20,000 20,000
 31 10,000 10,000
Feb. 8 110 30,000 40,000
9 Returns from
factory (Jan. 10 lot) ( 1,000) 41,000
28 11,000 30,000
Using the weighted average method, what is the cost of inventory of February
28?

During the month of January, Metro Company which used a perpetual inventory
system recorded the following information pertaining to inventory:
Units Unit cost Total cost Units on hand
Balance on 1/1 10,000_ 100 1,000,000 10,000____
Purchased on 1/7 6,000_ 300 1,800,000 16,000____
Sold on 1/20 9,000_ 7,000____
Purchased 1/25 4,000_ 500 2,000,000 11,000____
Under the moving average method, what amount should Metro report as
inventory on January 31?

Frey Company recorded the following data pertaining to raw

material during the month of January:

Units
Dat Received Cost Issued On hand
e
1/1 Inventor 200 8,000
y
1/8 Issue 4,000 4,000
1/20 Purchase 12,000 240 16,000

What is the moving average unit cost of the inventory on

January 31?
 Celine Company provided the following data relating to an inventory item.
Date Units Unit Cost Total cost
Jan. 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase return 2,000 150 300,000
Under the perpetual system, what is the moving average unit cost January 31?

Yakal Company reported that a flood recently destroyed many of the financial
records. The entity used an average cost inventory valuation system.
The entity made a physical count at the end of each month in order to
determine monthly ending inventory value. By examining various documents,
the following data are granted:
Ending inventory at July 31 60,000 units
Total cost of units available for sale in July 1,452,100
Cost of goods sold during July 1,164,100
Cost of beginning inventory, July 1 4.00 per unit
Gross profit on sales for July 935,900

Units Unit cost Total cost

July 5 55,000____ 5.10____ 280,500____
11 53,000____ 5.00____ 265,000____
15 45,000____ 5.50____ 247,500____
16 47,000____ 5.30____ 249,100____
Total purchases 200,000____ 1,042,100____
What is the number of units on July 1?
How many units were sold during the month of July?
What is the cost of the inventory on July 31?

Problem 30 – (1-5)
Casa Company purchased a tract of land for P12,000,000. The
entity incurred additional cost of P3,000,000 during the
remainder of the year in preparing the land for sale.
The tract of land was subdivided into residential lots.
Lot class Number of lots Sales price per lot
A 100 240,000
B 100 160,000
C 200 100,000
Using the relative sales value method, what amount of cost
should be allocated to Class A lots?

Solid Company purchased a plot of ground for P18,000,000. The

entity also paid an independent appraiser for the land the
amount of P500,000.
The land was developed as residential lots at a total cost of
P41,500,000.
Number of lots_ Sales price per lot
Highland 20______ 1,000,000____
Midland 40______ 750,000____
Lowland 100______ 500,000____
What total cost should be allocated to Highland lots?
Elixir Company bought a 10-hectare land for P5,800,000 to be improved,
subdivided into lots and eventually sold.
Taxes and documentation expenses on the transfer of the property
amounted to P80,000.
Lot class No. of lots Selling price per lot Total clearing cost
A 10___ 100,000_____ None
B 20___ 80,000_____ 100,000
C 40___ 70,000_____ 300,000
D 50___ 60,000_____ 800,000
What amount should be allocated as total cost of Class B lots under the
relative sales price method?

During the current year, Link Development Company purchased a tract of

land for P9,000,000. Additional cost of P1,500,000 was incurred in
subdividing the land during the year.
Of the tract acreage, 70% was subdivided into residential lots and 30% was
conveyed to the city for the road and a park.
Lot class Number of lots Sales price per lot
A 100 120,000
B 100 80,000
C 200 50,000
Under the relative sales price method, what is the cost allocated to each
Class A lot?

Apitong Company manufactures bath towels. The production

comprises 60% of “Class A” which sells for P500 per dozen and 40%
of “Class B” which sells for P250 a dozen.
During the current year, 60,000 dozen were produced at an average
cost of P360 a dozen.
The entity revealed the following inventory at the end of current
year:
2,200 dozen “Class A” @ P360 792,000
3,000 dozen “Class B” @ P360 1,080,000
Total inventory 1,872,000

Using the relative sales value method which management considers

as a more equitable basis of cost distribution, what is the
measurement of the inventory?
Problem 31 – (1-15)

Winter Company provided the following inventory data at year-end:

Cost NRV
Skis 2,200,000 2,500,000
Boots 1,700,000 1,500,000
Ski equipment 700,000 800,000
Ski apparel 400,000 500,000
What amount should be reported as inventory at year-end?

Harris Company provided the following information for an inventory

at year-end:
Historical cost 1,200,000
Estimated selling price 1,300,000
Estimated completion and selling cost 150,000
Replacement cost 1,100,000
What amount should be reported as inventory at year-end?

Aloha Company determined the following information for an

inventory at year-end:
Historical cost 2,000,000
Current replacement cost 1,400,000
Net realizable value 1,800,000
Net realizable value less normal profit margin 1,700,000
Fair value 1,900,000
What amount should be reported as inventory at year-end?
Chicago Company has two products in the inventory.
Product X Product Y
Selling price 2,000,000 3,000,000
Materials and conversion costs 1,500,000 1,800,000
General administrative costs 300,000 800,000
Estimated selling costs 600,000 700,000

At the year-end, the manufacture of items of inventory has been completed but
no selling costs have yet been incurred.
What amount should be reported as inventory using LCNRV individual
approach?
What amount should be reported as inventory using the LCRNV total approach?

Based on a physical inventory taken at year-end, Chewy Company

determined the chocolate inventory on a FIFO basis at P5,200,000
with a replacement cost of P4,000,000.
The entity estimated that after further processing costs of
P2,400,000, the chocolate could be sold as finished candy bars for
P8,000,000. The normal profit margin is 10% of sales.
Using the measurement at the lower of cost and net realizable value,
what amount should be reported as chocolate inventory at year-
end?

Greece Company provided the following data for the current

year.
Inventory – January 1
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31:
Cost 4,000,000
Net realizable value 3,700,000
What amount should be reported as cost of goods sold?

At year-end, Julie Company reported ending inventory at P3,000,000, and

the allowance for inventory write-down before any adjustment at
P150,000.
Product 1 Product 2 Product 3 Product 4
Historical cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
Net realizable value 550,000 1,100,000 950,000 350,000
 Normal profit 250,000 150,000 300,000 300,000
What amount of loss on inventory write-down should be included in cost of
goods sold?

White Company carried four items in inventory. The following per unit data relate to
these items at the end of first year of operations:
Units Cost Sale price Selling cost Normal profit
Category 1
A 25,000 105 130 15 20
B 20,000 85 90 10 10
Category 2
A 40,000 50 45 5 5
B 30,000 65 75 15 10

What is the measurement of inventory under LCNRV applied to individual item?

What is the measurement of inventory under LCNRV applied to inventory category?
What is the measurement of inventory under LCBRV applied to inventory as a whole?

Uptown Company used the perpetual method to record inventory

transactions for the current year.
Inventory 1,900,000
Sales 6,500,000
Sales return 150,000
Cost of goods sold 4,600,000
Inventory losses 120,000
In the latter part of the year, the entity recorded a P150,000 credit sale of
goods costing P100,000.
These goods were sold on FOB destination terms and were in transit at
year-end. The goods were included in the physical count.
The inventory at year-end determined by physical count had a cost of
P2,000,000 and a net realizable value of P1,700,000.
Any inventory write-down is not yet recorded.
What amount should be reported as cost of goods sold for the current
year?

Atlis Company reported the following information for the current year:
Sales (100,000 units at 15,000,000
P150) 1,000,000
Sales discount 9,300,000
Purchases 400,000
Purchase discount
The inventory purchases during the year were as follows:
Units Unit cost Total cost
Beginning inventory, January 1 20,000 60 1,200,000
Purchases, quarter ended March 30,000 65 1,950,000
31 40,000 70 2,800,000
Purchases, quarter ended June 30 50,000 75 3,750,000
Purchases, quarter ended Sept. 30 10,000 80 800,000
Purchases, quarter ended Dec. 31 150,000 10,500,000
The accounting policy is to report inventory in the financial statements at
the lower of cost and net realizable value.
Cost is determined under the first-in, first-out method.
At year-end, the entity has determined that the replacement cost of
inventory was P70 per unit and the net realizable value was P72 per unit.
The normal profit margin is P10 per unit.
What amount should be reported as cost of goods sold for the current
year?

In 2018, North Company experienced a decline in the value of inventory

resulting in a write-down from cost of P3,600,000 to net realizable value of
P3,000,000.
The entity used the allowance method to record the necessary adjustment.
In 2019, market conditions have improved dramatically. On December 31,
2019, the inventory had a cost of P5,000,000 and net realizable value of
P4,600,000.
What is the adjusting entry on December 31, 2018 and December 31, 2019,
respectively?

On December 31, 2018, Dos Company has outstanding purchase

commitments for 50,000 gallons at P20 per gallon of raw material.
It is determined that the market price of the raw material has declined to
P17 per gallon on December 31, 2018 and it is expected to decline further to
P15 in the first quarter of 2019.
What is the loss on purchase commitment that should be recognized in
2018?

On October 1, 2018, Gorgeous Company entered into a 6-

month, P5,200,000 purchase commitment for a supply of a
special product.
On December 31, 2018, the market value of this material had
fallen to P5,000,000.
On March 31, 2019, the market value of the purchase
commitment is P4,900,000.
What is the loss on purchase commitment to be recognized on
March 31, 2019?

On November 15, 2018, Diamond Company entered into a

commitment to purchase 10,000 ounces of gold on February 15,
2019 at a price of P310 per ounce.
On December 31, 2018, the market price of gold is P270 per
ounce. On February 15, 2019, the price of the gold is P300 per
 ounce.
a. What is the loss on purchase commitment to be recognized
on December 31, 2018?
b. What is the gain on purchase commitment to be recognized
on February 15, 2019?
c. What amount should be debited to purchases on February
15, 2019?
d. What amount should be recognized as accounts payable on
February 15, 2019?

On January 1, 2018, Card Company signed a three-year, noncancelable

purchase contract, which allows Card to purchase up to 5,000 units of a
computer part annually from Hart Company at P100 per unit and
guarantees a minimum annual purchase of 1,000 units.
During 2018, the part unexpectedly became obsolete, Card had 2,500 units
of this inventory on December 31, 2018, and believed these parts can be
sold as scrap for P20 per unit.
a. What amount of loss from the purchase commitment should be
reported in the 2018 income statement?
b. What amount should be recognized as loss on inventory write-down in
2018?

Problems 32-(1-5)

Lin Company sold merchandise at a gross profit of 30%. On June 30,

all of the inventory was destroyed by fire.
The entity provided the following information for the six months
ended June 30:
Net sales 8,000,000
Beginning inventory 2,000,000
Net purchases 5,200,000
What is the estimated cost of the destroyed inventory?

Grecelle reported during the following:

Beginning inventory 500,000
Net purchases 2,500,000
Net sales 3,200,000
A physical count at year-end resulted in an inventory of
P575,000. The gross profit on sales had remained constant at
25%.
The entity suspected that some inventory may have been
taken by a new employee.
What is the estimated cost of missing inventory at year-end?

Karen Company reported the following

information for the current year:
Beginning 5,000,000
Purchases 26,000,000
 Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
Sales discounts 1,000,000
A physical inventory taken at year-end resulted in
an ending inventory of P4,000,000.
At year-end, unsold goods out on consignment
with selling price of P1,000,000 are in the hands
of a consignee.
The gross profit was 40% on sales
What is the cost of goods available for sale?
What is the cost of goods sold?
What is the estimated cost of inventory
shortage?

At year-end, Pamela Company reported that a flood

caused severe damage to the entire inventory. Based on
recent history, the entity had a gross profit of 25% of
sales.
The entity provided the following information for the
current year:
Inventory, January 1 500,000
Purchases 4,000,000
Purchase returns 200,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000

What is the estimated cost of goods sold for the year?

What is the cost of ending inventory damaged by flood?
 On September 30, Brock Company reported that a fire
caused severe damage to the entire inventory. The entity
had a gross profit of 30% on cost.
The entity provided the following data for nine months
ended September 30:
Inventory at January 1 1,100,000
Net purchases 6,000,000
Net sales 7,280,000
A physical inventory disclosed usable damaged goods
which can be sold for P100,000.
What is the estimated cost of goods sold for the nine
months ended September 30?
What is the estimated amount of fire loss?

Problem 33 – (1-6)

On the night of September 30 2018, a fire destroyed most of the

merchandise inventory of Sonia Company.
All goods were completely destroyed except for partial damaged
goods that normally sell for P100,000 and that had an estimated net
realizable value of P25,000 and undamaged goods that normally sell
for P60,000.
Inventory, January 1 660,000
Net purchases, January 1 through September 30 4,240,000
Net sales, January 1 through September 30 5,600,000
Total 2017 2016 2015
Net sales 9,000,000 5,000,000 3,000,00 1,000,000
Cost of goods sold 6,750,000 3,840,000 0 710,000
Gross income 2,250,000 1,160,000 2,200,00 290,000
0
800,000
What is the estimated amount of fire loss on September 30, 2018?
At year-end, Empress Company had a fire which
completely destroyed the goods in process
inventory. A physical inventory was taken after the
fire.
The raw materials were valued at P600,000, the
finished goods at P1,000,000 and factory supplies at
P100,000 at year-end:
The beginning inventories consisted of the following:
Finished goods 1,400,000
Goods in process 1,000,000
Raw materials 300,000
Factory supplies 400,000
Data for the current year
Sales 3,000,000
Purchases 1,000,000
Freight in 100,000
Direct labor 800,000
Manufacturing overhead – 50% of DL ?
Average gross profit rate on sales 30%
What is the cost of goods sold?
What is the cost of goods manufactured?
What is the estimated cost of the ending good sin
process that were completely destroyed by fire?

At year-end, a storm surge damaged the warehouse of Braveheart

Company. The entire inventory and many accounting records were
completely destroyed.
January 1 December 31
Inventory 1,500,000
Purchases 5,500,000
Cash sales 900,000
Collections of accounts receivable 8,400,000
Accounts receivable 700,000 1,100,000
Gross profit rate on sales 40%
What is the inventory loss from the storm surge?
 Moderate Company provided the following information:
June July August
Sales on account 7,200,000 7,360,000 7,600,000
Cash sales 720,000 800,000 1,040,000
All merchandise is marked to sell at invoice cost plus
20%. Inventory at the beginning of each month is 30% of
that month’s cost of goods sold.
What is the cost of goods sold for June?
What is the amount of purchases for July?

On April 30, a fire damaged the office of Amaze Company. The

following balances were gathered from the general ledger on March 31:
Accounts Receivable 920,000
Inventory – January 1 1,880,000
Accounts Payable 950,000
Sales 3,600,000
Purchases 1,680,000
 An examination of the April bank statement and canceled checks
revealed checks written during the period April 1-30 as follows:
Accounts payable as of March 31 240,000
April merchandise shipments 80,000
Expenses 160,000
Deposits during the same period amounted to P440,000 which
consisted of collections from customers with the exception of
P20,000 refund from a vendor for merchandise returned in April.
 Customers acknowledged indebtedness of P1,040,000 at April 30.
Customers owed another P60,000 that will never be recovered. Of
the acknowledged indebtedness, P40,000 may prove uncollectible.
 Correspondence with suppliers revealed unrecorded obligations at
April 30, of P340,000 for April merchandise shipment, including
P100,000 for shipments in transit on that date.
 The average gross profit rate is 40%.
 Inventory with a cost of P260,000 was salvaged and sold for
P140,000. The balance of the inventory was a total loss.
What is the total amount of sales up to April 30?
What is the total amount of purchases up to April 30?
What is the inventory on April 30?
What is the fire loss to be recognized on April 30?
In conducting an audit of Remy Company for the year ended June 30, 2018,
the entity’s CPA observed the physical inventory at an interim date, May 31,
2018:
Inventory, July 1, 2017 875,000
Physical inventory, May 31, 2018 950,000
Sales for 11 months ended May 31, 2018 8,400,000
Sales for year ended June 30, 2018 9,600,000
Purchases for 11 months ended May 31,2018 6,750,000
Purchases for year ended June 30, 2018 8,000,000

a. Shipments received in May and included in the

physical inventory but recorded as June purchases 75,000
b. Shipments received in unsalable condition and
excluded from physical inventory. Credit memos had
not been received nor had chargebacks to vendors
been recorded:
Total at May 31, 2018 10,000
Total at June 30, 2018 (including the May
Unrecorded chargebacks) 15,000
c. Deposits made with vendor and charged to purchases
in April 2018. Product was shipped in July 2018 20,000
d. Deposit made with vendor and charged to purchases
in May 2018. Product was shipped FOB destination,
on May 29, 2018 and was included in May 31, 2018
physical inventory as goods in transit. 55,000
e. Through the carelessness of the receiving
department, a June shipment was damaged by rain.
This equipment was later sold in June at the cost of 100,0000
What is the cost of goods sold for the month of June 2018?
What is the inventory on June 30, 2018?
 Problem 34 – (1-10)

Janelle Company used the retail inventory method to

approximate the ending inventory.
Cost Retail
Beginning inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Markup 400,000
Markup cancellation 100,000
Markdown 1,200,000
Markdown cancellation 200,000
Sales 9,500,000
Sales discount 100,000
Employee discounts 500,000
Estimated normal shoplifting loss 600,000
Estimated normal shrinkage 400,000
a. What is the estimated cost of ending inventory using
conservative approach?
b. What is the estimated cost of ending inventory using
the average cost approach?

At year-end, Huff Company provided the following

information:
Cost Retail
Beginning inventory 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markups ________ 210,000
Available for sale 4,900,000 7,000,000
Sale for the year totaled P5,530,000. Markdowns
amounted to P70,000.
Under the approximate lower of average cost or
market retail method, what is the ending
inventory?
Dean Company used the retail inventory method to estimate
inventory at year-end.
Cost Retail
Beginning inventory 720,000 1,000,000
Purchases 4,080,00 6,300,000
Net markups 0 700,000
Net markdowns 500,000
Sales 6,820,000
Estimated normal shoplifting losses 80,000
Under the average cost retail method, what is the estimated
cost of ending inventory?

Caramel Company used the average retail inventory

method. At year-end, the following information relating to
the inventory was gathered:
Cost Retail
Beginning inventory 190,000 450,000
Purchases 2,990,000 4,350,000
Purchase discounts 40,000
Freight in 150,000
Markups 300,000
Markdowns 400,000
Sales 4,400,000
Sales return 100,000
Sales discount 50,000
Sales allowance 30,000
What is the estimated cost of the ending inventory?

Hutch Company used the average cost retail inventory

method to account for inventory. The following information
related to operations for the current year:
Cost Retail
Beginning inventory and purchases 6,000,000 9,200,000
Net markups 400,000
Net markdowns 600,000
Sales 7,800,000
What amount should be reported as cost of goods sold for
the current year?
 Domicile Company had the following
amounts all at retail:
Beginning inventory 180,000
Purchases 6,000,000
Purchase return 300,000
Net markup 900,000
Net markdown 140,000
Sales 3,600,000
Sales return 90,000
Employee discounts 80,000
Normal shortage 130,000
Abnormal shortage 200,000

What is the ending inventory at retail?

Robles-Empleo

Mega Company had the following inventory transactions during 2019:

Units Unit Cost Unit SP
Inventory, January 1 250 10.50
Purchase, March 7 200 11.00
Purchase, July 15 275 11.75
Sale, May 20 (120) 14.00
Sale, June 30 (55) 15.00
Sale, September 17 (250) 16.00
Inventory, December 31 300
Required:
Determine the cost of ending inventory, cost of goods sold and gross
profit under each of the following inventory cost flow methods.
Complete the given below. (Where necessary, round off unit cost to
nearest centavo and total cost to nearest peso)
Cost of Ending Cost of Goods Gross
Inventory Sold Profit
FIFO _________ _________ _________
Weighted Average _________ _________ _________
Moving Average _________ _________ _________