PROBLEM 1

WALLNUT CO. asks you to review its December 31, 2012 inventory values and prepare the
necessary adjustments to the books. The following information is given to you;
1. Wallnut uses the periodic method of recording inventory. A physical count reveals
P704,670 of inventory on hand at December 31, 2012.
2. Not included in the physical count of inventory is P31,260 of merchandise purchased on
December 15 from Benggay. This merchandise was shipped f.o.b. shipping point on
December 29 and arrived in January. The invoice arrived and was recorded on December
31.
3. Included in inventory is merchandise sold to Bubbly on December 30, f.o.b. destination.
This merchandise was shipped after it was counted. The invoice was prepared and
recorded as a sale on account for P38,400 on December 31. This merchandise cost
P22,050, and Bubbly received it on January 3.
4. Included in inventory was merchandise received from Doodle on December 31 with an
invoice price of P46,890. The merchandise was shipped f.o.b. destination. The invoice,
which has not yet arrived, has not been recorded.
5. Not included in inventory is P25,620 of merchandise purchased from Maundy Company.
This merchandise was received on December 31 after the inventory had been counted.
The invoice was received and recorded on December 30.
6. Included in inventory was P31,314 of inventory held by Wallnut on consignment from
Jaka Corporation.
7. Included in inventory is merchandise sold to Simon f.o.b. shipping point. This
merchandise was shipped after it was counted. The invoice was prepared and recorded
as a sale for P56,700 on December 31. The cost of this merchandise was P34,560, and
Simon received the merchandise on January 5.
8. Excluded from inventory was a carton labeled, “Please accept for credit.” This carton
contains merchandise costing P4,500 which had been sold to a customer for P7,800. No
entry had been made to the books to reflect the return, but none of the returned
merchandise seemed damaged.

Required:
a. Compute the correct inventory balance for Wallnut at December 31, 2012.
b. Prepare any correcting entries to adjust inventory and related accounts to their proper
amounts at December 31, 2012. Assume the books have not been closed.

PROBLEM 2
In testing the sales cut-off for the BIG LOVE COMPANY in connection with an audit for the year
ended October 31, 2012, you find the following information.
A physical inventory was taken as of the close of business on October 31, 2012. All customers
are within a three-day delivery area of the company’s plant. The unadjusted balances of Sales
and Inventories are P7,500,000 and P330,000, respectively.
Invoice FOB Terms Date Date Recorded Sales Cost
Number Shipped
6671 Destination Oct. 20 Oct. 31 P3,000 P2,70
0
6672 Shipping Oct. 31 Nov. 2 7,500 6,000
point
6673 Shipping Oct. 25 Oct. 31 5,400 3,600
point
6674 Destination Oct. 31 Oct. 29 12,600 9,300
6675 Destination Oct. 31 Nov. 2 27,600 24,00
0
6676 Shipping Nov. 2 Oct. 23 19,500 15,30
point 0
6677 Shipping Nov. 5 Nov. 6 22,500 17,40
point 0
6678 Destination Oct. 25 Nov. 3 11,700 6,000
6679 Shipping Nov. 4 Oct. 31 25,800 24,60
point 0
6680 Destination Nov. 5 Nov. 2 15,000 12,00
0

Based on the foregoing information, compute the October 31, 2012, adjusted balances of the
following accounts:
1. Sales
 a. P7,461,300 c. P7,449,600
b. P7,455,900 d. P7,487,100
2. Inventories
a. P354,000 c. P348,000
b. P363,300 d. P357,300

PROBLEM 3
You are conducting a financial statement audit of the BEVERLY HILLS CORP. for the year ended
December 31, 2012. You have observed the taking of physical inventory and have noted that
all merchandise actually received up to the close of business on December 28, 2012 has been
recorded on the inventory sheets. The total invoice cost of the items included in the physical
count is P300,000.
The following purchase invoices have been recorded in the Purchases Journal as follows:
DECEMBER 2012
Invoice Number Amount Invoice Date FOB Term Date Received
251 P10,248 Dec. 23 Destination Dec. 24
252 8,136 Dec. 23 Destination Dec. 29
253 3,123 Dec. 26 Shipping point Dec. 30
254 12,600 Dec. 26 Shipping point Jan. 5
255 13,833 Jan. 2 Destination Dec. 31
256 6,309 Dec. 31 Destination Jan. 4
257 3,486 Dec. 27 Shipping point Dec. 21
258 21,162 Jan. 8 Shipping point Jan. 2
259 34,866 Dec. 22 Destination Dec. 28
260 11,331 Dec. 28 Destination Dec. 27
JANUARY 2013
261 P3,672 Dec. 28 Destination Jan. 4
262 11,391 Dec. 30 Destination Dec. 28
263 17,712 Dec. 29 Shipping point Dec. 31
264 14,700 Jan. 2 Shipping point Jan. 5
265 41,400 Dec. 28 Shipping point Jan. 4
266 17,877 Dec. 30 Destination Jan. 6

Required:
1. Auditor’s adjusting entries, if any, required by the above information.
2. Show the detailed composition of the value of the inventory to be used on the financial
statements. Transportation-in charges on purchases averaged 6% during the year and
are to be included in the inventory valuation.

PROBLEM 4
The GOAT COMPANY reviewed its inventories and found the following items:
1. In the shipping room was a product costing P13,400 when the physical count was taken.
Because it was marked “Hold for shipping instructions”, it was not included in the count.
The customer order was dated December 15, but the product was shipped and the
customer billed on January 4, 2013.
2. On December 27, 2012, merchandise costing P11,648 was received and recorded. The
invoice accompanying the merchandise was marked “on consignment”.
3. The company received merchandise costing P4,625 on January 2, 2013. The invoice,
which was recorded on January 3, 2013 showed shipment was made under FOB shipping
point on December 31, 2012. This merchandise was not included in the inventory
because it was not on hand when the physical count was taken.
4. A product, fabricated to order for a particular customer, was completed and in the
shipping room on December 31. Although it was shipped on January 5, 2013, the
customer was billed on December 31, 2012, and it was excluded from the inventory.
5. Merchandise costing P16,666 was received on January 5, 2013, and the related purchase
invoice was recorded January 6. The shipment of this merchandise was made on
December 31, 2012, FOB destination.
6. A product costing P150,000 was sold on an installment basis on December 10, 2012. It
was delivered to the customer on that date. The product was included in inventory
because Goat still holds legal title. The company’s experience suggests that full
payment on installment sales is reasonably assured.
7. An item costing P65,000 was sold and delivered to the customer on December 29, 2012.
The goods were included in the inventory because the sale was with a repurchase
agreement that requires Goat to buy back the inventory on January 15, 2013.
Indicate which of the above items are to be included in the inventory balance at December 31,
2012. State your reasons for the treatment you suggest.

PROBLEM 5
The management of PIG, INC. , has engaged you to assist in the preparation of year-end
(December 31) financial statements. You are told that on November 30, the correct inventory
level was 145,730 units. During the month of December, sales totaled 138,630 units including
40,000 units shipped on consignment to AA Corp. A letter received from AA indicates that as of
December 31, it has sold 15,200 units and was still trying to sell the remainder.
A review of the December purchase orders to various suppliers shows the following:

Purchase Order Invoice Quantity in Date Date Terms

Date Date Units Shipped Received
12/31/12 01/02/13 4,200 01/02/13 01/05/13 FOB
Destination
12/05/12 01/02/13 3,600 12/17/12 12/22/12 FOB
Destination
12/06/12 01/03/13 7,900 01/05/13 01/07/13 FOB Shipping
point
12/18/12 12/20/12 8,000 12/29/12 01/02/13 FOB Shipping
point
12/22/12 01/05/13 4,600 01/04/13 01/06/13 FOB
Destination
12/27/12 01/07/13 3,500 01/05/13 01/07/13 FOB
Destination
Pig, Inc. uses the “passing of legal title” for inventory recognition.

1. Goods purchased during December totaled

a. 11,600 units c. 19,500 units
b. 15,800 units d. 8,000 units
2. How many units were sold during December?
a. 138,630 units c. 98,630 units
b. 113,830 units d. 153,830 units
3. How many units should be included in Pig, Inc.’s inventory at December 31, 2012?
a. 18,700 units c. 43,500 units
b. 39,900 units d. 47,700 units
4. Purchase cutoff procedures should design to test whether all inventory
a. Purchased and received before year-end was paid for.
b. Ordered before year-end was received.
c. Purchased and received before year-end was recorded.
d. Owned by the company is in the possession of the company at year-end.
5. The audit of year-end physical inventories should step to verify that the client’s
purchases and sales cutoffs were adequate. The audit steps should be designed to
detect whether merchandise included in the physical count at yearend was not recorded
as
a. Sale in the subsequent period.
b. Purchase in the current period.
c. Sale in the current period.
d. Purchase return in the subsequent period.

PROBLEM 6

The following audited balances pertain to OWL COMPANY.

Accounts payable:
January 1, 2012 P 286,824
December 31, 2012 737,824
Inventory balance:
January 1, 2012 815,386
December 31, 2012 488,874
Cost of goods sold – 2012 1,859,082

How much was paid by Owl Company to its suppliers in 2012?

a. P2,636,494 b. P1,734,694
b. P1,081,670 d. P1,983,470
PROBLEM 7
The following information was provided by the bookkeeper of COW, INC.:
1. Sales for the month of June totaled 286,000 units.
2. The following purchases were made in June:
DATE QUANTITY UNIT COST
June 4 50,000 P13.000
June 8 62,500 12.50
June 11 75,000 12.000
June 24 70,000 12.40
3. There were 108,500 units on hand on June 1 with a total cos of P1,450,000.
Cow, Inc. uses a periodic FIFO costing system. The company’s gross income for June was
P2,058,750.

1. How many units were on hand on June 30?

a. 80,000 c. 28,500
b. 177,500 d. 149,000
2. What is FIFO cost of the company’s inventory on June 30?
a. P1,025,000 c. P988,000
b. P1,016,230 d. P1,069,124
3. What is the total cost of goods sold in June?
a. P3,632,200 c. P3,580,126
b. P3,617,900 d. P3,661,250
4. The 285,000 units sold in June had a unit selling price of
a. P20 c. P12.70
b. P13 d. P7.20
5. An essential procedural control to ensure the accuracy of the recorded inventory
quantities is
a. Performing a gross profit test.
b. Testing inventory extensions.
c. Calculating unit costs and valuing obsolete or damaged inventory items in
accordance with inventory policy.
d. Establishing a cutoff for goods received and shipped.

PROBLEM 8
In your audit of the December 31, 2012, financial statements of CHICKEN, IMC., you found the
following inventory-related transactions.
a. Goods costing P50,000 are on consignment with a customer. These goods were not
included in the physical count of December 31, 2012.
b. Goods costing P16,500 were delivered to Chicken, Inc. on January 4, 2013. The invoice
for these goods was received and recorded on January 10,2013. The invoice showed the
shipment was made on December 29, 2012, FOB shipping point.
c. Goods costing P21,640 were shipped FOB shipping point on December 31, 2012, and
were received by the customer on January 2, 2013. Although the sale was recorded in
2012, these goods were included in the 2012 ending inventory.
d. Goods costing P8,640 were shipped to a customer on December 31, 2012, FOB
destination. These goods were delivered to the customer on January 5, 2013, and were
not included in the inventory. The sale was properly taken up in 2013.
e. Goods costing P8,600 shipped by a vendor under FOB destination term, were received
on January 3, 2013, and thus were not included in the physical inventory. Because the
related invoice was received on December 31, 212, this shipment was recorded as a
purchase in 2012.
f. Goods valued at P51,000 were received from a vendor under consignment term. These
goods were included in the physical count.
g. Chicken, Inc. recorded as a 2012 sale a P64,300 shipment of goods to a customer on
December 31, 2012, FOB destination. This shipment of goods costing P37,500 was
received by the customer on January 5, 2013, and was not included in the ending
inventory figure.

Prior to any adjustments, Chicken, Inc.’s ending inventory is valued at P445,000 and the
reported net income for the year is P1,648,000.
1. Chicken’s December 31, 2012, inventory should be increased by
a. P8,000 c. P66,000
b. P40,000 d. P61,640
 2. Which of the errors described in “a to g” will not affect the company’s net income for
2012?
a. Item a c. Item e
b. Item g d. Item b
3. What is Chicken’s adjusted net income for the year 2012?
a. P1,565,800 c. P1,615,800
b. P1,607,160 d. P1,666,800
4. Purchase cutoff procedures test the cutoff and completeness assertions. A company
should include goods in its inventory if it
a. Has sold the goods.
b. Holds legal title to the goods.
c. Has physical possession of the goods.
d. Has paid for the goods.
5. When title to merchandise in transit has passed to the audit client, the auditor engaged
in the performance of a purchase cutoff will encounter the greatest difficulty in gaining
assurance with respect to the
a. Quantity c. Price
b. Quality d. Terms

PROBLEM 9
ZEBRA MUSIKAHAN CO. sells musical instruments. In your audit of the company’s financial
statements for the year ended December 31, 2012, you have gathered the following data
concerning inventory.
At December 31, 2012, the balance in Zebra’s Inventory account was P502,000, and the
Allowance for Inventory Writedown had a balance of P32,000. The relevant inventory cost and
market data at December 31, 2012 are summarized in the schedule below.
Cost Replacem Sales Net Normal
ent Cost Price Realizable Profit
Value
Guitars P89,00 P86,000 P91,500 P87,000 P6,400
0
Xylophon 94,000 92,000 93,000 85,000 7,440
es
Trumpets 125,00 135,000 129,000 111,000 11,610
0
Violins 194,00 114,000 205,000 197,000 20,500
0
Total P502,0 P427,000 P518,50 P480,000 P45,950
00 0

1. What is the proper balance in the Allowance for Inventory Write-down at December 31,
2012?
a. P75,000 c. P32,000
b. P22,000 d. P25,000
2. The adjusting entry on December 31, 2012 to arrive at the proper allowance balance
should be
a. Allowance for inventory write-down 7,000
Gain on inventory recovery 7,000
b. Loss on inventory write-down 7,000
Allowance for inventory writedown 7,000
c. Allowance for inventory writedown 3,000
Gain on inventory recovery 3,000
d. Loss on inventory writedown 43,000
Allowance for inventory writedown 43,000

PROBLEM 10
MALOX Specialty Company manufactures three models of gear shift components for bicycles
that are sold to bicycle manufacturers, retailers, and catalog outlets. Since its inception, Malox
has used normal absorption costing and has assumed a first-in, first-out cost flow in its
perpetual inventory system. The balances of the inventory accounts at the end of Malox’s
fiscal year, November 30, 2012, are shown below. The inventories are stated at cost before any
year-end adjustments.
Finished goods P1,941,000
 Work in process 337,500
Raw materials 792,000
Factory supplies 207,000

The following information relates to Malox’s inventory and operations.

1. The finished goods inventory consists of the items analyzed below.
Cost NRV
Down tube shifter
Standard model P 202,500 P 201,000
Click adjustment model 283,500 267,000
Deluxe model 324,000 330,000
Total down tube shifters 810,000 798,000

Bar end shifter

Standard model 249,000 270,150
Click adjustment model 297,000 292,650
Total bar end shifters 546,000 562,800

Head tube shifter

Standard model 234,000 232,950
Click adjustment model 351,000 357,900
Total head tube shifters 585,000 590,850
TOTAL FINISHED GOODS P1,941,000 P1,951,650

2. One-half of the head tube shifter finished goods inventory is held by catalog outlets on
consignment.
3. Three-quarters of the bar end shifter finished goods inventory had been pledged as
collateral for a bank loan.
4. One-half of the raw materials balance represents derailleurs acquired at a contracted
price 20 percent above the net realizable value. The net realizable value of the rest of
the raw materials is P382,200.
5. The total net realizable value of the work in process inventory is P326,100.
6. Included in the cost of factory supplies are obsolete items with historical cost of
P12,600. The net realizable value of the remaining factory supplies is P197,700.
7. Malox applies the lower cost or net realizable value method to each of the three types of
shifters in finished goods inventory. For each of the other three inventory accounts,
Malox applies the lower of cost or net realizable value method to the total of each
inventory account.
8. Consider all amounts presented above to be material in relation to Malox’s financial
statements taken as a whole.

Based on the preceding information determine the proper values of the following on November
31, 2012.
1. Finished goods inventory
a. P1,941,000 c. P1,951,650
b. P1,929,000 d. P1,963,650
2. Work in process inventory
a. P324,900 c. P326,200
b. P337,500 d. P313,500
3. Raw materials inventory
a. P792,000 c. P726,000
b. P682,200 d. P712,200
4. Factory supplies
a. P194,400 c. P185,100
b. P197,700 d. P207,000
5. Which of the following best describes the PAS 2 requirement for applying the same cost
formula to all inventories?
a. When they are purchased from different suppliers.
b. When they are purchased from the same geographic region.
c. When they are similar in nature or use.
d. When they sell for the same price.

PROBLEM 11
GAVIAL, INC. sells electric stoves. It uses the perpetual inventory system and allocates cost to
inventory on a first-in, first-out basis. The company’s reporting date is December 31. At
December 31, 2012, inventory on hand consisted of 350 stoves at P820 each and 43 stoves at
P850 each. During the month ended December 31, 2012, the following inventory transactions
occurred (all purchase and sales transactions are on credit):
2012
Dec. 1 Sold 300 stoves for P1,200 each.
Dec. 3 Five stoves were returned by customers. They had originally cost P280 each and
were sold for P1,200 each.
Dec. 9 Purchased 55 stoves at P910 each.
Dec. 10 Purchased 76 stoves at P960 each.
Dec. 15 Sold 86 stoves for P1,350.
Dec. 17 Returned one damaged stove to the supplier. This stove had been purchased on
December 9.
Dec. 22 Sold 60 stoves for P1,250 each.
Dec. 26 Purchased 72 stoves at P980 each.

1. What is the FIFO cost of Gavial’s inventory on December 31, 2012?

a. P148,930 c. P133,607
b. P148,980 d. P126,280
2. What is the cost of goods sold in December 2012?
a. P367,230 c. P366,320
b. P371,330 d. P389,930
3. What is Gavial’s gross income in December 2012?
a. P173,770 c. P177,870
b. P155,170 d. P183,870
4. PAS 2 requires inventories to be measured at the lower cost and net realizable value.
Which of the following are possible reasons why the net realizable value of the stoves on
hand at December 31, 2012 may be below their cost?
I. Inventories are damaged.
II. Inventories are wholly or partially obsolete.
III. Selling prices have declined below cost.
a. I and II only c. I and III only
b. II and III only d. I, II, and III
5. If the net realizable value of Gavial’s inventory on December 31, 2012 falls to P920, the
inventory value should be reduced by
a. P7,300 c. P8,162
b. P7,250 d. P0

PROBLEM 12
The following information was obtained from the statement of financial position of LION, INC.:
Dec. 31, 2012 Dec. 31, 2011
Cash P706,600 P200,000
Notes receivable 0 50,000
Inventory ? 399,750
Accounts payable ? 150,000
All operating expenses are paid by Lion, Inc. with cash and all purchases of inventory are made
on account. Lion, Inc. sells only one product. All sales are cash sales which are made for P100
per unit. Lion, Inc. purchases 1,500 units of inventory per month and values its inventory using
periodic FIFO. The unit cost of inventory during January 2012 was P65.20 and increased P0.20
per month during the year. During 2012, payments to suppliers totaled P943,400 and
operating expenses totaled P440,000. The ending inventory for 2011 was valued at P65.00 per
unit.

Based on the preceding information, determine the following:

1. Number of units sold during 2012
a. 18,900 c. 16,000
b. 18,400 d. 21,400
2. Total cost of purchases during 2012
a. P1,173,600 c. P1,213,200
b. P1,191,600 d. P1,193,400
3. Accounts payable balance at December 31, 2012
a. P793,400 c. P400,000
b. P393,400 d. P419,800
4. Inventory quantity at December 31, 2012
a. 5,750 c. 5,250
b. 6,550 d. 8,150
5. FIFO cost of inventory on December 31, 2012
a. P352,500 c. P385,900
 b. P439,230 d. P425,830

PROBLEM 13
Your client took a complete physical inventory under your observation as of December 15 and
adjusted the inventory control account (perpetual inventory method) to agree with the physical
inventory. You have decided to accept the balance of the control account as of December 31,
after reflecting transactions recorded therein from December 16 to December 31, in
connection with your financial statement audit for the year ended December 31.
Your examination of the sales cut-off as of December 15 and December 31 revealed the
following items not previously considered.
Cost Sales Price Date Shipped Date Date Credited to Inventory
Billed Control
P5,650 P7,200 12/14 12/17 12/17
2,430 4,650 12/13 12/20 12/13
6,870 9,200 01/03 12/31 12/31

1. What adjusting journal entries, if any, would you make for each of these items?
2. Periodic or cycle counts of selected inventory items are made at various times during
the year rather than a single inventory count at year-end. Which of the following is
necessary if the author plans to observe inventories at interim dates?
A. Complete recounts by independent teams are performed.
B. Perpetual inventory records are maintained.
C. Unit cost records are integrated with production accounting records.
D. Inventory balances are rarely at low levels.
3. If the perpetual inventory records show lower quantities of inventory than the physical
count, an explanation of the difference might be unrecorded
A. Sales C. Purchases
B. Sales discounts D. Purchase discounts
4. The physical count of inventory of a retailer was higher than shown by the perpetual
records. Which of the following could explain the difference?
A. Inventory items had been counted but the tags placed on the items had not been
taken off the items and added to the inventory accumulation sheets.
B. Credit memos for several items returned by customers had not been recorded.
C. No journal entry had been made on the retailer’s books for several items returned
to its suppliers.
D. An item purchased “FOB shipping point” had not arrived at the date of the
inventory count and had been reflected in the perpetual records.
5. An auditor is most likely to learn of slow-moving inventory through
A. Inquiry of sales personnel
B. Inquiry of warehouse personnel
C. Physical observation on inventory
D. Review of perpetual inventory records

PROBLEM 14
CAIMAN, INC. uses perpetual inventory system and reports inventory at the lower FIFO cost or
net realizable value. Caiman’s inventory control account balance at June 30, 2012, was
P442,040. A physical count conducted on that day found inventory on hand worth P440,40..
Net realizable value for each inventory item held for sale exceeded cost. An investigation of
the discrepancy disclosed the following:
1. Goods worth P13,200 held on consignment for Bugok Co. had been included in the
physical count.
2. Goods costing P2,400 were purchased on credit from Amor Co. on June 27, 2012 on FOB
shipping point terms. The goods were shipped on June 28, 2012, nut, as they had not
arrived by June 30, 2012, were not included in the physical count. The purchase invoice
was received and processed on June 30, 2012.
3. Goods costing P4,800 were sold on credit to Acero Co. for P7,800 on June 28, 2012, on
FOB destination terms. The goods were still in transit on June 31, 2012. The sales invoice
was processed and recorded on June 29, 2012.
4. Goods costing P5,460 were purchased on credit (FOB destination) from San Miguel Co.
on June 28, 2012. The goods were received on June 29, 2012, and included in the
physical count. The purchase invoice was received on July 2, 2012.
5. On June 30, 2012, Caiman sold goods costing P12,600 on credit (FOB shipping point)
terms to Pisaro Corp. for P19,200. The goods were dispatched from the warehouse on
June 30, 2012, but the sales invoice had not been processed at that date.
 6. Damaged inventory items valued at P5,300 were discovered during the physical count.
These items were still recorded on June 30, 2012, but were omitted from the physical
count records pending their write-off.

1. What is the adjusted inventory balance on June 30, 2012?

A. P424,800 c. P445,000
B. P421,200 D. P434,400
2. What adjustment should be made to Caiman’s sales revenue for the year ended June 30,
2012?
A. Net increase of P11,400
B. Net decrease of P11,400
C. Increase of P19,200
D. Decrease of P7,800
3. Caiman’s accounts payable at June 30, 2012 should be
A. Decreased by P5,460
B. Increased by P5,460
C. Decreased by P5,300
D. Increased by P160
4. The “unlocated difference” between the perpetual balance and the physical count
amounts to
A. P5,300 C. P1,640
B. P160 D. P0
5. The entry to correct the error described in item no. 2 is
A. Purchases 2,400
Accounts payable 2,400
B. Inventory 2,400
Accounts payable 2,400
C. Inventory 2,400
Cost of sales 2,400
D. No adjusting entry is necessary.

PROBLEM 15
You are engaged in an audit of the financial statements of the CARABAO COMPANY for the year
ended October 31, 2012, and have observed the physical inventory count on that date.
All merchandise received up to and including October 30, 2012 has been included in the
physical count. The following list of invoices is for purchases of merchandise and are entered in
the purchases journal for the months of October and November 2012, respectively:

OCTOBER 2012
Amount FOB Date of Invoice Date Merchandise
Received
P7,200 Destination October 19 October 21
4,400 Destination October 20 October 22
9,250 Shipping point October 20 October 30
3,900 Destination October 25 November 3
2,500 Destination November 4 October 29
10,250 Shipping point October 26 October 30
9,200 Shipping point October 27 October 30
13,600 Destination October 21 October 30
34,600 Destination October 29 October 30

NOVEMBER 2012
P2,000 Destination October 29 November 4
4,850 Destination October 30 October 31
6,420 Shipping point October 27 October 30
7,220 Shipping point November 2 October 30
12,820 Shipping point October 23 November 3
14,200 Shipping point October 23 November 3
15,000 Destination October 27 November 3

No perpetual inventory records are maintained, and the physical inventory count is to be used
for the financial statements.

1. What adjusting entry is necessary for the October 25 invoice?

A. Accounts payable 3,900
 Purchases 3,900
B. Purchases 3,900
Accounts payable 3,900
C. Inventory, ending 3,900
Cost of sales 3,900
D. No adjusting entry is necessary.
2. What adjusting entry is necessary for the November 4 invoice?
A. Purchases 2,500
Accounts payable 2,500
B. Accounts payable 2,500
Purchases 2,500
C. Cost of sales 2,500
Inventory, ending 2,500
D. No adjusting entry is necessary.
3. The journal entry to adjust the purchases account should be
A. Debit to purchases of P45,510
B. Credit to purchases of P3,900
C. Net debit to purchases of P41,610.
D. Net credit to purchases of P41,610.
4. The net adjustment to accounts payable is
A. P3,900 increase C. P41,610 increase
B. P3,900 decrease D. P41,610 decrease
5. Carabao’s October 31 physical inventory should be increased by
A. P31,870 C. P45,510
B. P41,610 D. P73,480

PROBLEM 16
The following information was taken from the audited financial statements of HORSE CO.:
Inventories:
December 31, 2012 P791,000
December 31, 2011 744,000
December 31, 2010 720,800

2012 2011
Sales P10,832,000 P10,053,400
Cost of goods sold 4,482,000 4,246,000
Net profit 952,800 734,800

Based on the preceding information, compute for the following:

1. 2011 inventory turnover
A. 5.80 times C. 5.71 times
B. 5.89 times D. 6.12 times
2. 2012 inventory turnover
A. 5.67 times C. 5.84 times
B. 5.53 times D. 6.02 times
3. 2011 average days to sell inventory
A. 63.9 C. 62
B. 59.6 D. 62.9
4. 2012 average days to sell inventory
A. 64.4 C. 60.6
B. 62.5 D. 66

PROBLEM 17
SEAL WHOLESALER wholesales food products to independent grocery stores. The company
uses the perpetual inventory system and assigns cost to inventory on a first-in, first-out basis.
Transactions and other related information regarding two of the items (baked beans and plain
flour) carried by Seal are given below for December 2012, the last month of the company’s
reporting period.
BAKED BEANS PLAIN FLOUR
Unit of packaging Case containing 25 x 410 g cans Box containing 12 x 4 kg bags
Inventory @ Dec. 1 350 cases @ P196 625 boxes @ P384
Purchases 1. Dec. 10: 200 cases @ P195 1. Dec. 3: 150 boxes @ P384.50
2. Dec. 19: 470 case @ P197 per 2. Dec. 15: 200 boxes @
case P384.50
3. Dec. 29: 240 @ P390
Purchase terms 2/10, n/30, FOB shipping n/30, FOB destination
December sales 730 cases @ P285 950 boxes @ P400
Returns and allowances A customer returned 50 cases that As the Dec. 15 purchase was
had been shipped in error. The unloaded, 10 boxes were
customer’s account was credited discovered damaged. A credit of
for P14,250. P3,845 was received by Seal
Wholesaler.
Physical count at 326 cases on hand 15 boxes on hand
December 31
Explanation of variance No explanation found – assumed Boxes purchased on Dec. 29
stolen still in transit on Dec. 31
Net realizable value at P290 per case P385 per box
Dec. 31

1. What is the cost of Baked Beans inventory that was assumed stolen?
A. P2,744 C. P2,730
B. P4,060 D. P2,758
2. What is the cost of Plain Flour inventory on December 31, 2012?
A. P5,850 C. P5,767
B. P5,760 D. P5,775
3. What is the total cost of Seal’s inventory (Baked Beans and Plain Flour) on December 31,
2012?
A. P69,989 C. P77,301
B. P72,747 D. P100,315
4. PAS 2 requires inventory to be stated at the lower cost and
A. Fair value C. Nominal value
B. Net realizable value D. Net selling price
5. What amount of loss on decline in value of inventory should be recognized by Seal at
the end of its reporting period?
A. P38,236 C. P30,326
B. P7,910 D. P0

PROBLEM 18
MONKEY CO.’s annual net income for the period 2008-2012 is as follows:
YEAR NET INCOME (loss)
2008 P150,000
2009 340,000
2010 645,000
2011 (100,000)
2012 250,000
A review of the company’s records reveals the following inventory errors:
2008 P3,000 overstatement, end of year
2009 6,000 understatement, end of year
2011 4,500 understatement, end of year
2012 11,000 understatement, end of year

1. What is the adjusted net income in 2008?

A. P150,000 C. P153,000
B. P159,000 D. P147,000
2. What is the adjusted net income in 2009?
A. P331,000 C. P349,000
B. P337,000 D. P340,000
3. What is the adjusted net income in 2010?
A. P651,000 C. P639,000
B. P648,000 D. P645,000
4. What is the adjusted net loss in 2012?
A. P89,500 C. P100,000
B. P101,500 D. P95,500
5. What is the adjusted net income in 2012?
A. P250,000 C. P243,500
B. P234,500 D. P256,500

PROBLEM 19
The SNAKE, INC. reported income before taxes of P842,650 for 2012 and P965,350 for 2013.
The company takes its annual physical count of inventory every December 31. Your audit
revealed the following information:
a. The price used for 1,500 units included in the 2012 ending inventory was P109. The
correct cost was P190 per unit.
b. Goods costing P23,600 were received from a vendor on January 5, 2013. The shipment
was made on December 26, 2012, under FOB shipping point term. The purchase was
recorded in 2012 but the shipment was not included in the 2012 ending inventory.
c. Merchandise costing P64,750 was sold to a customer on December 29, 2012. Snake was
asked by the customer to keep the merchandise until January 3, 2013, when the
customer would come and pick it up. Although the sale was properly recorded in 2012,
the merchandise was included in the ending inventory.
d. A supplier sold merchandise valued at P14,000 to Snake, Inc. The merchandise was
shipped FOB point on December 29, 2012, and was received by Snake on December 31,
2012. The purchase was recorded in 2013 and the merchandise was not included in the
2012 ending inventory.

1. What is the adjusted income before taxes for the year ended December 31, 2012?
A. P809,500 C. P875,800
B. P632,800 D. P923,000
2. What is the adjusted income before taxes for the year ended December 31, 2012?
A. P877,000 C. P885,000
B. P932,200 D. P843,850

PROBLEM 20
In your audit of the RABBIT, INC. , you find that a physical inventory count on December 31,
2012 showed merchandise costing P463,000 was on hand at that date. Your examination
reveals the following items were all excluded from the inventory per count.
1. Merchandise of P20,000 which is on consignment.
2. Goods costing P39,500 that were shipped FOB shipping point on December 31, 2012.
These goods were delivered to the customer on January 6, 2013.
3. Goods costing P16,800 that were shipped FOB destination to a customer on December
29, 2012. The customer received these goods on January 2, 2013.
4. Merchandise costing P76,150 shipped by a seller FOB destination on December 28, 2012
and received by Rabbit, Inc. on January 3, 2013.
5. Goods costing P16,500 shipped by a vendor FOB seller on December 31, 2012, and
received by Rabbit, Inc. on January 4, 2013.

What is the amount that should appear on Rabbit, Inc.’s statement of financial position as
inventory at December 31, 2012?
A. P539,000 C. P535,800
B. P519,000 D. P496,300

PROBLEM 21
BIRD COMPANY is a manufacturer of small tools. The following information was obtained from
the company’s accounting records for the year ended December 31, 2012:

Inventory at December 31, 2012 (based on physical count in Bird’s

warehouse at cost on December 31, 2012.) P1,870,000
Account payable at December 31, 2012 1,415,000
Net Sales (sales less sales returns) 9,693,400

Your audit reveals the following information:

1. The physical count included tools billed to a customer FOB shipping point on December
31, 2012. These tools cost P64,000 and were billed at P78,500. They were in the
shipping area waiting to be picked up by the customer.
2. Goods shipped FOB shipping point by a vendor were in transit on December 31, 2012.
These goods with invoice cost of P93,000 were shipped on December 29, 2012.
3. Work in process inventory costing P27,000 was sent to a job contractor for further
processing.
4. Not included in the physical count were goods returned by customers on December 31,
2012. These goods costing P49,000 were inspected and returned to inventory on
January 7, 2013. Credit memos for P67,800 were issued to the customers at that date.
5. In transit to a customer on December 31, 2012, were tools costing P17,000 shipped FOB
shipping point on December 26, 2012. A sales invoice for P29,400 was issued on January
 3, 2013, when Bird Company was notified by the customer that the tools had been
received.
6. At exactly 5:00 pm on December 31, 2012, goods costing P31,200 were received from a
vendor. These were recorded on a receiving report dated January 2, 2013. The related
invoice was recorded on December 31, 2012, but the goods were not included in the
physical count.
7. Included in the physical count were goods received from a vendor on December 27,
2012. However, the related invoice for P36,000 was not recorded because the
accounting department’s copy of the receiving report was lost.
8. A monthly freight bill for P32,000 was received on January 3, 2013. It specifically related
to merchandise bought in December 2012, one-half of which was still in the inventory at
December 31, 2012. The freight was not included in either the inventory or in accounts
payable at December 31, 2012.

1. Bird’s December 31, 2012 inventory should be increased by

A. P216,200 C. P252,200
B. P233,200 D. P123,200
2. Bird’s accounts payable balance at December 31, 2012 should be increased by
A. P68,000 C. P125,000
B. P145,000 D. P161,000
3. The amount of net sales to be reported on Bird’s income statement for the year ended
December 31, 2012 should be
A. P9,547,100 C. P9,591,000
B. P9,576,500 D. P9,595,300
4. Bird’s statement of financial position at December 31, 2012 should report accounts
payable of
A. P1,576,000 C. P1,540,000
B. P1,483,000 D. P1,431,000
5. The amount of inventory to be reported on Bird’s December 31, 2012 statement of
financial position should be
A. P2,103,200 C. P2,122,200
B. P2,086,200 D. P1,993,200

PROBLEM 22
The cost of goods sold section of the income statement prepared by your client for the year
ended December 31 appears as follows:
Inventory, January 1 P 80,000
Purchases 1,600,000
Cost of goods available for sale P1,680,000
Inventory, December 31 100,000
Cost of goods sold P1,580,000

Although the books have been closed, your working paper trial balance is prepared showing all
accounts with activity during the year. This is the first time your firm has made an
examination. The January 1 and December 31 inventories appearing above were determined
by physical count of the goods on hand on those dates and no reconciling items were
considered. All Purchases are FOB shipping point.
In the course of your examination of the inventory cutoff, both at the beginning and end of the
year, you discovered the following facts:
Beginning of the Year
1. Invoices totaling P25,000 were entered in the voucher register in January, but the goods
were received during December.
2. December voices totaling P13,200 were entered in the voucher register in January, but
the goods were received until January.

End of the Year

3. Sales of P43,000 (cost of P12,900) were made on account on December 31 and goods
delivered at that time, but all entries relating to the sales were made on January 2.
4. Invoices totaling P15,000 were entered in the voucher register in January, but the goods
were received in December.
5. December invoices totaling P18,000 were entered in the voucher register in December,
but the goods were not received until January.
6. Invoices totaling P12,000 were entered in the voucher register in January, and the goods
were received in January, but the invoices were dated December.
 1. What working paper adjustment should be made at the end of the current year for item
no. 1?
A. Purchases 25,000
Retained earnings 25,000
B. Retained earnings 25,000
Purchases 25,000
C. Inventory, beginning 25,000
Purchases 25,000
D. No adjusting entry is necessary
2. The company’s paper adjustment to correct the error described in item no. 3 should
include a debit to
A. Accounts receivable at P43,000
B. Sales of P43,000
C. Inventory of P12,900
D. Retained earnings of P30,100
3. The company’s statement of financial position as the end of the current year should
show inventory of
A. P130,000 C. P93,200
B. P100,000 D. P117,100
4. What is the net adjustment to purchases of the current year?
A. P27,000 increase C. P2,000 increase
B. P25,000 decrease D. P2,000 decrease
5. The cost of goods sold for the current year is
A. P1,561,200 C. P1,580,000
B. P1,553,200 D. P1,565,200

PROBLEM 23
CHEETAH CORPORATION is a wholesale distributor of kitchen utensils. Unadjusted balances
obtained from Cheetah’s accounting records are as follows:
Inventory (based on physical count of goods in Cheetah’s warehouse at December 31)
P 432,000
Accounts payable, December 31:
Vendor Terms Amount
Zonrox, Inc. Net 30 P36,000
Yeba Corp. Net 30 28,000
Xak, Inc. Net 30 83,000
Wais Co. Net 30 ---
Velma, Inc. Net 30 --- P
147,000
Sales
P2,600,000

The following additional information was also obtained:

1. Goods held on consignment from Zonrox, Inc., the consignor, valued at P13,000 were
included in the physical count of goods in Cheetah’s warehouse at December 31, and in
Accounts Payable balance as of December 31, 2012.
2. Goods costing P26,400 that were purchased from Wais Co. and paid for in December
were sold in the last week of the current year. The sale was properly recorded at
P58,000 in December. Because the goods were in the shipping area of Cheetah’s
warehouse to be picked up by the customer, they were included in the physical count at
December 31.
3. Retailers were holding goods costing P25,000 (retail price is P35,700) shipped by
Cheetah under consignment term.
4. Goods were in transit from Velma, Inc. to Cheetah on December 31. The cost of these
goods was P23,500, and they were shipped FOB shipping point on December 28.

Based on the preceding information, compute the adjusted balances of the following:
1. Inventory
A. P417,600 C. P467,500
B. P416,100 D. P441,100
2. Accounts payable
A. P134,000 C. P157,500
B. P136,500 D. P170,500
3. Sales
A. P2,600,000 C. P2,564,300
B. P2,635,700 D. P2,625,000
PROBLEM 24
You have been engaged to audit the financial statements of CAMEL CORP. for the year ended
December 31, 2012. The company is engaged in the wholesale chemical business and makes
all sales at 30% above cost.
Shown below are portions of the company’s Sales and Purchases ledger accounts:
SALES
Date Reference Amount Date Reference Amount
12/31 Closing P1,221,027 Balance P946,720
entry forwarded
12/28 SI no. 835 25,680
12/28 SI No. 836 14,196
12/28 SI No. 837 11,439
12/31 SI No. 839 65,436
12/31 SI No. 840 81,122
12/31 SI No. 841 76,434
P1,221,027 P1,221,
027
(SI = sales invoice)
PURCHASES
Date Reference Amount Date Reference Amount
Balance P418,600 12/31 Closing P509,025
forwarded entry
12/28 RR No. 949 14,500
12/30 RR No. 951 26,700
12/31 RR No. 952 34,550
12/31 RR No. 953 14,675
P590,025 P509,025
(RR = Receiving Report)

Camel Corp. conducted its annual physical inventory at December 31, 2012. You observed the
physical count and were satisfied that it was properly taken.
When performing a sales and purchases cutoff test, you found the following:
a. All receiving reports and sales invoices are prepared in strict numerical sequence.
b. The last receiving report number used in calendar year 2012 is PR No. 953.
c. The sales invoice number corresponding to the last shipment made in 2012 is SI No.
838.

You also obtained the following additional information:

1. Included in the physical count at December 31 were chemicals costing P25,000 that
have been purchased and received on RR No. 950. As of December 31, 2012, no vendor
invoice has been received for these chemicals.
2. There were goods located in the shipping area of Camel Corp. on December 31, 2012,
but were not included in the physical count. These had been sold to XYZ Co. who had
already paid for the goods. The goods were picked up by XYZ Co.’s truck on January 3,
2013. The sale was recorded on SI No. 835.
3. At the close of business on December 31, 2012, there were two boxcars standing on
Camel Corp.’s siding:
a. Boxcar 14344AA was unloaded on January 2, 2013. The receiving report for this
merchandise is RR No. 953. The freight was paid by the vendor.
b. Boxcar 021261JR was loaded and sealed on December 31, 2012. The car was
taken from Camel Corp.’s siding on January 2, 2013. It contained a shipment of
goods to ABC Co. and was covered by SI No. 838. The sales price for this order
was P65,000, and transportation charges were to be paid by ABC Co.
4. Temporarily stranded on a distant railroad siding at December 31, 2012, was a boxcar of
chemicals en route to DEF Company. This was covered by SI No. 836. The terms of this
shipment were FOB destination.
5. Goods in transit from a vendor at December 31, 2012, were received on RR No. 954. The
terms of this shipment were FOB destination. Freight charges of P1,500 were paid by
Camel Corp. However, this P1,500 freight charge was deducted from the purchase price
of P16,800.

Determine the net adjustment to be made at December 31, 2012, for each of the following
accounts:
1. Sales
A. P222,992 debit C. P171,752 debit
 B. P237,188 debit D. P208,796 debit
2. Accounts receivable
A. P208,796 credit C. P237,188 credit
B. P222,992 credit D. P171,752 credit
3. Cost of sale
A. P50,595 credit C. P39,675 credit
B. P75,595 credit D. P25,000 debit
4. Accounts payable
A. P39,675 credit C. P25,000 debit
B. P39,675 debit D. P25,000 credit
5. Inventory
A. P60,920 debit C. P75,595 debit
B. P50,000 debit D. P64,675 debit

PROBLEM 25
The following information was taken from the records of CROCODILE BOUTIQUE for the month
of December:
Sales P198,000
Sales return 4,000
Additional markups 20,000
Markup cancellations 3,000
Markdowns 18,600
Markdown cancellations 5,600
Freight-in 4,800
Purchases at cost 96,000
Purchases at retail 176,000
Purchase returns at cost 4,000
Purchase returns at retail 6,000
Beginning inventory at cost 60,000
Beginning inventory at retail 93,000

1. What is the cost of Crocodile’s ending inventory under the retail inventory (average
cost) method?
A. P40,880 C. P51,296
B. P43,070 D. P43,500
2. The difference in the calculation of the cost-to-retail percentage applying the
conventional retail method and the average cost method is that the average cost
method
A. Excludes beginning inventory
B. Excludes markdowns
C. Includes markups
D. Includes markdowns

PROBLEM 26
On September 5, 2012, a fire damaged the warehouse of TIGER COMPANY. All inventory items
and many accounting records stored in the warehouse were destroyed. However, a portion of
the inventory could be sold for scrap. The company’s backup files provide the following
information:
Inventory, January 1 P 750,000
Cash sales, January 1 – September 5 445,000
Purchases, January 1 – September 5 2,770,000
Collection of accounts receivable, January 1 – September 5 4,230,000
Accounts receivable, January 1 350,000
Accounts receivable, September 5 530,000
Salvage value of inventory 15,000
Gross profit ratio 32%

What is the estimated inventory loss?

A. P208,400 C. P203,600
B. P506,200 D. P218,600

PROBLEM 27
CAT CORP. began operations in 2007. On July 15, 2012, a fire broke out in the company’s
warehouse destroying all inventory and many accounting records. The following information
was assembled from the microfilmed records. All sales and purchases are on account.
Jan. 1, 2012 July 15,
2012
Inventory P287,700
Accounts receivable 261,180 P 257,780
Accounts payable 176,280 245,700
Collection form customers, Jan. 1, 2012 – 1,507,600
July 15, 2012
Payments to suppliers, Jan. 1, 2012 – July 975,000
15, 2012
Goods out on consignment on July 15, 97,500
2012 at cost
Goods in transit at July 15, 2012, 34,750
purchased FOB shipping point (included in
the July 15 accounts payable balance)

The following is a summary of prior year’s sales and gross profit on sales:
2009 2010 2011
Sales P1,252,000 P1,410,000 P1,360,000
Gross profit 375,600 366,600 462,400

1. What is the company’s average gross profit ratio based on its prior year’s sales?
A. 26% C. 30%
B. 34% D. 29%
2. What is the company’s total sales for the period January 1 through July 15 of the current
year?
A. P1,504,200 C. P1,765,380
B. P1,511,000 D. P1,768,780
3. What is the company’s total purchases for the period January 1 through July 15 of the
current year?
A. P905,580 C. P1,044,420
B. P912,170 D. P1,009,670
4. What is the company’s estimated inventory on July 15, 2012?
A. P186,605 C. P146,930
B. P244,430 D. P279,180
5. What is the inventory fire loss?
A. P146,930 C. P132,250
B. P186,605 D. P112,180

PROBLEM 28
On April 15, 2012, fire damaged the office and warehouse of PEACOCK COMPANY. The trial
balance below was prepared from the general ledger which was the only accounting record
saved.

Peacock Company
TRIAL BALANCE
March 31, 2012

Debit Credit
Cash P35,000
Held-for-trading securities 350,000
Accounts receivable 120,000
Inventory, December 31, 2011 225,000
Land 950,000
Building 800,000
Accumulated depreciation - Building P260,000
Machinery and equipment 130,500
Accumulated depreciation – Mach. & 69,400
Equip.
Other noncurrent assets 98,000
Accounts payable 71,100
Other expense accruals 15,400
Ordinary share capital 1,220,600
 Retained earnings 849,000
Sales 405,000
Purchases 156,000
Other operating expenses 26,000
P2,890,500 P2,890,500

The following additional information has been obtained:

1. The company’s year-end is December 31.
2. An examination of the April bank statement and cancelled checks revealed the
following:
 Checks written, April 1 – 15 P39,000
(P17,100 paid to accounts payable as of March 31, P10,200 for April merchandise
shipments and P11,700 paid for other operating expenses)
 Deposits, April 1 – 15 38,850
(consisted of collections from customers with the exception of 1 P2,850 refund
from a supplier for goods returned in April)
3. Communication with suppliers unrecorded payables at April 15 of P31,800 for April
merchandise shipments, including P6,900 for goods in transit (FOB shipping point) on
that date.
4. Customers acknowledged indebtedness of P108,000 (including P1,800 that will probably
be uncollectible). It was also estimated that customers owed another P24,000 that will
never be acknowledged or recovered.
5. The insurance company agreed that the fire-loss claim should be based on the
assumption that the overall gross profit ratio for the past 2 years was in effect during
the current year. The company’s audited financial statements disclosed the following
information:
Dec. 31, 2011 Dec. 31, 2010
Net sales P1,590,000 P1,170,000
Net purchases 480,000 705,000
Beginning inventory 150,000 225,600
Ending inventory 225,000 150,000
6. Inventory costing P21,000 was salvaged and sold for P10,500. The balance of the
inventory was a total loss.

Based on the preceding information, determine the following:

1. Gross profit ratio
A. 52% C. 44%
B. 33% D. 47%
2. Sales, January 1, 2012 – April 15, 2012
A. P429,000 C. P405,000
B. P381,000 D. P453,000
3. Net purchases, January 1, 2012 – April 15, 2012
A. P195,150 C. P188,250
B. P198,000 D. P204,900
4. Cost of inventory not destroyed by fire
A. P27,900 C. P10,500
B. P17,400 D. P21,000
5. Inventory fire loss
A. P175,950 C. P138,570
B. P165,450 D. P149,070

PROBLEM 29
SHARK, INC. was organized on January 1, 2011. On December 31, 2012, the company lost most
of its inventory in a warehouse fire just before the year-end count of inventory was to take
place. The company’s records disclosed the following data:
2011 2012
Inventory, January 1 P0 P204,000
Purchases 860,000 692,000
Purchase returns and 43,120 64,600
allowances
Sales 788,000 836,000
Sales returns and allowances 16,000 20,000

On January 1, 2012, Shark’s pricing policy was changed so that the gross profit rate would be
three percentage points higher than the earned in 2011.
Salvaged undamaged merchandise was marked to sell at P24,000 while damaged merchandise
marked to sell at P16,000 had an estimated realizable value of P3,600.

1. What is the company’s gross profit rate beginning January 1, 2012?

A. 24% C. P17%
B. 21% D. 20%
2. How much is the inventory fire loss?
A. P189,400 C. P164,920
B. P183,640 D. P254,000

PROBLEM 30
DINOSAUR, INC. is an importer and wholesaler of car accessories. Its merchandise is purchased
from a number of suppliers and is warehoused until sold to customers.

In conducting his audit of Dinosaur’s financial statements for the year ended December 31,
2012, the company’s external auditor had determined that the internal control system is
functioning effectively. Accordingly, he observed the physical count of inventory at an interim
date, November 30, 2012.

The following information was obtained from Dinosaur’s accounting records:

Inventory, January 1 P 175,000
Inventory, November 30 (per physical count) 190,000
Sales for 11 months ended November 30 1,680,000
Sales for year ended December 31 1,920,000
Purchases for 11 months ended November 30 1,350,000
Purchases for year ended December 31 1,600,000

The CPA’s audit disclosed the following information:

1. Shipments received in November and included in the physical count at
November 30 but recorded as December purchases.
P15,000

2. Shipments received in unsalable condition and excluded in inventory.

The returns were not recorded because no credit memos were received from vendors.
Total at November 30 2,000
Total at December 31 (including the Nov. 30 unrecorded returns) 3,000

3. Deposit made with vendor and charged to Purchase in October.

The goods were shipped in January 2013. 4,000

4. Deposit made with vendor and charged to Purchases in November.

The goods were shipped FOB destination on November 29 and were
Included in the physical inventory as goods in transit.
11,000

5. Through the carelessness of the receiving department, a

December shipment was damaged by rain. These goods were
Later sold at cost in December. 20,000

Based on the preceding information, determine the following:

1. Adjusted net purchases up to
November 30 December 31
A. P1,333,000 P1,595,000
B. 1,350,000 1,582,000
C. 1,348,000 1,593,000
D. 1,352,000 1,592,000

2. Gross profit for 11 months ended November 30,2102

A. P347,000 C. P332,000
B. P336,000 D. P351,000

3. Gross profit ratio for 11 months ended November 30, 2012

A. 19.8% C. 20.6%
B. 20.9% D. 20%

4. Cost of goods sold for the month of December 2012?

 A. P192,000 C. P194,680
B. P196,000 D. P196,440

5. Estimated inventory at December 31, 2012

A. P228,000 C. P245,000
B. P232,000 D. P227,560

PROBLEM 31
At December 31, 2012, SHEEP CORP. reported current assets of P2,400,000 and current
liabilities of P1,200,000. The following items may have been recorded incorrectly.
i. Goods purchased costing P132,000 were shipped FOB shipping point by a supplier in
December 28. Sheep received and recorded the invoice on December 29, but the goods
were not included in Sheep’s physical count of inventory because they were not
received until January 4.
ii. Goods purchased costing P90,000 were shipped FOB destination by a supplier on
December 26. Sheep received and recorded the invoice on December 31, but the goods
were not included in Sheep’s physical count of inventory because they were not
received until January 2.
iii. Goods held on consignment from Black Corporation were included in Sheep’s physical
count inventory at P78,000.

1. What is Sheep’s current ratio after corrections are made?

A. 2.21 to 1. C. 2.09 to 1.
B. 2.0 to 1. D. 2.04 to 1.
2. By what amount will income before taxes be adjusted up or down as a result of the
corrections?
A. P120,000 increase. C. P36,000 decrease.
B. P78,000 decrease. D. P144,000 increase.

PROBLEM 32
A general ledger account is maintained by LIZARD COMPANY for each class of inventory. Such
inventory accounts are debited for increases during the period and credited for decreases. The
following transactions relate to Lizard’s Raw Material Inventory account, which is debited for
use.

1. An invoice for P48,600, terms FOB destination, was received and entered January 2,
2013. The receiving report shows that the materials were received December 29, 2012.
2. Materials costing P168,000, shipped FOB destination, were not entered by December 31,
2012, “because they were in a railroad car on the company’s siding on that date and
had not been unloaded.”
3. Materials costing P43,800 were returned on December 29, 2012, to the creditor, and
were shipped FOB shipping point. The return was entered on that date, even though the
materials are not expected to reach the creditor’s place of business until January 7,
2013.
4. An invoice for P45,000, terms FOB shipping point, was received and entered December
31, 2012. The receiving report shows that the materials were received January 4, 2013,
and the bill of lading shows that they were shipped January 2, 2013.
5. Materials costing P118,800 were received December 31, 2012, but no entry was made
for them because “they were ordered with a specified delivery of no earlier than January
9, 2013.”

Prepare correcting entries required at December 31, 2012, assuming that the books have not
been closed. Ignore income taxes.

PROBLEM 33
The following transactions occurred a few days before and after LEOPARD COMPANY’S fiscal
year which ends October 31. The company uses a periodic inventory system.
a. An invoice fro P75,000 terms FOB shipping point, was received and entered November
2. The invoice shows that the material was shipped October 31, but the receiving report
indicates receipt of goods on November 3.
b. An invoice for P162,000, terms FOB destination, was received and entered October 25.
The receiving report indicates that the goods were received October 30.
c. An invoice for P147,000, terms FOB shipping point, was received October 14 but never
entered. Attached to it is a receiving report indicating that the goods were received
 October 19. Across the face of the receiving report is the following notation:
“Merchandise not of same quality as ordered – returned for credit October 20.”
d. An invoice for P114,000, terms FOB shipping point, was received and entered October
28. The receiving report attached to the invoice indicates that the shipment was
received October 28 in satisfactory condition.
e. An invoice for P42,600, terms FOB shipping point, was received and recorded November
3. The receiving report indicates that the merchandise was received October 31.

You are instructed to review these transactions and to determine whether any correcting
entries are to be prepared and whether the inventory per physical count on October 31 should
be adjusted.
1. Prepare any adjusting journal entries at October 31. Assume that the books have not
been closed.
2. What is the net adjustment to Leopard’s inventory as determined by physical count on
October 31?
A. P75,000 increase C. P33,000 decrease
B. P90,000 increase D. P72,000 decrease

PROBLEM 34
The physical inventory of BULL, INC. as of December 26, 2012, totaled P945,000. You agreed
on the December 26 count as the company has a good internal control system. In trying to
establish the December 31 inventory, you noted the following transactions from December 27
to December 31, 2012.
Sales (30% markup on cost) P390,000
Credit memos issued:
For goods returned on:
December 15 10,800
December 20 18,000
December 29 15,600
For goods delivered to customers not in accordance with specifications
3,600
Credit memos received:
For goods returned on:
December 10 5,400
December 26 4,200
December 28 6,000
Purchases:
Placed in stock 90,000
In transit, FOB shipping point 124,500
In transit, FOB destination 39,000

What is the inventory balance on December 31, 2012?

A. P690,000 B. P693,000
B. P780,000 D. P865,500

PROBLEM 35
A recent fire severely damaged PENGUIN COMPANY’S ADMINISTRATION BUILDING AND
DESTROYED MANY OF ITS FINANCIAL RECORDS. You have been contracted by Penguin’s
management to reconstruct as much financial information as possible for the month of July. You
learn that Penguin makes a physical inventory count at the end of each month to determine
monthly ending inventory values. You also find out that the company applies the average cost
method.

You are able to gather the following information by examining various documents:
Inventory, July 31 150,000 units
Total cost of goods available for sale in July P356,400
Cost of goods sold during July P297,000
Gross profit on sales for July P303,000
Cost of inventory, July 1 P0.35 per unit

The following are Penguin’s July purchases of merchandise:

DATE QUANTITY UNIT COST
July 6 180,000 P0.40
July 12 150,000 0.41
July 16 120,000 0.42
 July 17 150,000 0.45

Penguin’s management has asked you to provide the following information:

1. Number of units on hand, July 1
A. 450,000 C. 169,714
B. 848,571 D. 300,000
2. Units sold during July
A. 600,000 C. 750,000
B. 300,000 D. 450,000
3. Unit cost of inventory at July 31
A. P0.35 C. P0.419
B. P0.396 D. P0.279
4. Value of inventory at July 31
A. P59,400 C. P62,850
B. P52,500 D. P41,850