PROBLEM 1

Correcting Inventory Errors

The TILL CORPORATION has adjusted and closed its book at the end of 2016. The compa
inventory position by a physical can't taken on December 31 of each year. In March 2017, the following er
were discovered:
a. Merchandise that cost P 7,500 was sold for P 10,200 on December 30,2016. The order was shipped
December 31,2016, with terms FOB Shipping point. The merchandise was not included in the ending
inventory. The sale was recorded on January 15,2017, when the customer made payment on the sal
b. On January 2,2017, Till Corp. received merchandise that had been shipped to it on December 31,201
terms of the purchase were FOB Shipping point. Cost of the merchanside was P 5,250. The purchas
and the goods included in the inventory on January 2,017
c. On January 8,2017 merchandise that had been included in the ending inventory was returned to Till b
consignee had not been able to sell it. The cost of this merchandise was P 3,600 with a selling price
d. Merchandise costing P 2,250 located in a separate warehouse, was overlooked and excluded from th
inventory count.
e. On December 27,2016, Till Corporation purchased merchandise costing P 3,525 from a supplier. The
shipped December 28 terms FOB destination and was still in transit on December 31. Because the in
received on December 31, the purchase was recorded in 2016. The merchandise was not included In
count.
f. The corporation failed to make an entry for a purchase on account of P 2,505 at the enfd of 2016, alt
this merchandise in the inventory count. The purchase was recorded when payment was made to the
g. The corporation included in its 2016 ending inventory merchandise with a cost of P 4,050. This merch
built and was being held according to te customer's written request until the customer could come an
merchandise. The sale, for P 5,485 was recorded in 2017.

Required:
a. Prepare the entry in 2017 (2016 books are closed) to correct each error. Assume that the errors
all amouts are material, and the periodic inventory system is used.
b. Prepare the schedule to show corrected balance.

Answer:
A JOURNAL ENTRIES 2017

a. Sales 10,200
Retained Earnings 10,200

b. Merchandise Inventory 5,250

Purchases 5,250

c. No Entry necessary

d. Merchandise Inventory 2,250

Retained Earnings 2,250
e. Purchases 3,525
Retained Earings 3,525

f. Retained Earnings 2,505

Purchases 2,505

g. Sales 5,475
Merchandise Inventory 4,050
Retained Earnings 1,425
March 2017, the following errors

016. The order was shipped

as not included in the ending
er made payment on the sale.
ed to it on December 31,2016. The
e was P 5,250. The purchase was recorded

ventory was returned to Till because the

P 3,600 with a selling price of P5,400.
looked and excluded from the 2016

P 3,525 from a supplier. The order was

ecember 31. Because the invoice was
chandise was not included In the inventory

,505 at the enfd of 2016, although it included

en payment was made to the supplier in 2017.
a cost of P 4,050. This merchandise had been custom
he customer could come and pick up the

ror. Assume that the errors were made during 2016

 Problem 2
Computation of Adjusted Sales and Inventories

In testing the sale cut-off fot the BIG LOVE COMPANY in connection with an audit for the year ended Octo
find the following information:

A physical inventory was taken as of the close of business on October 31,2016. All customers are within a
area of the company's plant. The unadjusted balances of Sales and Inventories are P 7,500,000 and P 33

Invoice Date Date

Number FOB TERMS Shipped Recorded Sales
6671 Destination Oct. 20 Oct. 31 3,000.00
6672 Shipping Point Oct. 31 Nov. 2 7,500.00
6673 Shipping Point Oct. 25 Oct. 31 5,400.00
6674 Destination Oct.31 Oct.29 12,600.00
6675 Destination Oct. 31 Nov. 2 27,600.00
6676 Shipping Point Nov. 2 Oct. 23 19,500.00
6677 Shipping Point Nov. 5 Nov.6 22,500.00
6678 Destination Oct. 25 Nov. 3 11,700.00
6679 Shipping Point Nov. 4 Oct. 31 25,800.00
6680 Destination Nov. 5 Nov. 2 15,000.00

Based on the foregoing information, compute the October 31,2016, adjusted balances of the following acc
a. Sales
b. Inventories

Answer:
Unadjusted Balances P 7,500,000 P 330,000
Invoices No.
6672 7,500 -
6674 (12,600) (9,300)
6675 - 24,000
6676 (19500) -
6678 11,700 -
6679 (25800) -
Adjusted Balances P 7,461,300 P 363,300
 tories

udit for the year ended October 31,2016, you

6. All customers are within a three-day delivery

s are P 7,500,000 and P 330,000 respectively.

Cost
2,700.00
6,000.00
3,600.00
9,300.00
24,000.00
15,300.00
17,400.00
6,000.00
24,600.00
12,000.00

alances of the following accounts.

 Problem 3
Analyzing Inventory Transactions

The GOAT COMPANY reviewed its inventories and found thefollowing items:
a. In the shippine roomwas product ciosting P 13,400 when the physical counts was take. Because it wa
"Hoki for shipping instructions", it was not ncluded in the count. The customer order was dated Decem
but the product was shipped and the customer billed on January 4,2016.
b. On December 27,2016, merchandise costing P 13,648 was received and recorded. The invoice accom
merchandise was marked "on consignment."
c. The company received merchandise costing P 4,625 on January 2,2017. The invoice, which was reco
3,2017 showed shipment was made under FOB shipping point on December 31,2016. The merchand
in the inventory because it was no on hand when the physical count was taken.
d. A product fabricated to order for a particulat customer, was completed and in the shipping room on De
Although it was shipped on January 5, 2017, the customer was billed on December 31,2016, and it wa
inventory.
e. Merchandise costing P 16,666 wasa received on January 5,2017, and the related purchase invoice w
January 6. The shippment of this merchandise was made on December 31, 2016., FOB destination.
f. A product costing P 150,000 was sold on an installment basis on December 10,2016. It was delivered
date. The product was included in inventory because Goat still holds legal title. The compnay experien
payment on installment sales is reasonably assured.
g. An item costing P 65,000 was sold and delivered to the customer on December 29,2016. The goods w
because the sale was with a repurchase agreement that requires Goat to buy back the inventory on Ja

Requirement:
Indicate which of the above items are to be included in the inventory balance at December 31,2016. S
treatmen you suggest.

Answer:

1. Included (Merchandise, except "special orders", should be included in the inventory until shipp
2. Excluded (Goat Company does not posses legal title because the merchandise was received o
3. Included (Because the purchase was made under FOB Shipping point term, the merchandise
inventory on the shippinng date)
4. Excluded (A product that is manufacutured for a particular customer "special order"is considere
5. Excluded (The merchandise was purchased under FOB destination term and was not received
6. Excluded (The sale is recognized even though legal title has not passed.)
7. Included (This is actually loan transaction with the inventory as collateral.)
 s was take. Because it was marked
er order was dated December 12,

corded. The invoice accompanying the

he invoice, which was recorded on January

r 31,2016. The merchandise was not included

n the shipping room on December 31.

cember 31,2016, and it was excluded from the

elated purchase invoice was recorded

2016., FOB destination.
10,2016. It was delivered to the customer on that
tle. The compnay experience suggests that full

mber 29,2016. The goods were included in the inventory

uy back the inventory on January 15,2017.

e at December 31,2016. State your reason for the

in the inventory until shipped.)

erchandise was received on a consignment basis.)
int term, the merchandise should be included in the

"special order"is consideres sold upon its completion.

erm and was not received until January 5,2017)
 Problem 4
FIFO Costing Method

The following information was provided by the bookkeeper of COW,Inc:

a. Sales for the month of June totaled 268,000 units.

b. The following purchases were made in June
Date Quantity Unit Cost
June. 4 50,000 13.00
8 62,500 12.50
11 75,000 12.00
24 70,000 12.40
c. There was 108,500 units on hand on June 1 with a total cost of P 1,450,000

Cow ,Inc. uses a periodic FIFO Costing systems. The company's gross profit for June
was P 2,058,750.

Questions:
a. How many units were on hand on June 30?
b. What is the FIFO cost of the company's inventory on June 30?
c. What is the total cost of goods sold in June?
d. What is the unit selling price of the 286,000 units sold in June?

Answer:

a. Inventory quantity, June 1

Add: Units purchased during June
Units available for sale
Less: Units sold during June
Inventory Quantity, June 30

b. FIFO COST INVENTORY, June 30

DATE QUANTITY
Purchase- June 24 70,000
Purchase- June 11 10,000
80,000

c. COST OF GOODS SOLD , June 30

QUANTITY
Beginning Inventory 108,500
Purchase- June 4 50,000
Purchase- June 8 62,500
 Purchase- June 11
(SQUEEZE) 65,000
286,000

d. SELLING PRICE PER UNIT, June

Gross Profit P 2,085,750

Add: Cost of Goods Sold 3,661,250
Sales P 5,720,000
Divide by units sold 286,000
Sales price per unit P 20
oblem 4
sting Method

ss profit for June

108,500
257,500
366,000
(286,000)
80,000

UNIT COST AMOUNT

P 12.40 P 868,000
12 120,000
- P 988,000

UNIT COST AMOUNT

P 1,450,000
P 13 650,000
12.5 781,250
12 780,000
P 3,661,250
 Problem 5
Inventory Valuation

You are engaged in an audit of the KURATSO CO. for the year ended December 31,2016. To reduce the
the company took its annual physical inventory under your observation on November 30,2016.

The company's inventory account, which included raw materials and work in process, I on a perpetual bas
first-in, first-out method of pricing. It has no finished goods inventory.

The compnay's physical inventory revealed that the book inventory of P 181,710 was understated by P 9,0
the interim financial statements, the company decided not to adjust the book inventory until year-end exce
obsolete inventory items.

Your audit revealed this information about the November 30 inventory:

a. Pricing bets showed that the physical inventory was overpriced by P 6,600.
b. Footing and extension errors resulted in a P 450 understatement of the physical inventory.
c. Direct labor included in the physical inventory amounted to P 30,000. Overhead was included at the rate
200% of direct labor. You determined that the amount of direct kabor was correct and the overhead ra
d. The physical inventory included obsolete materials recorded ar P750. During December, these material
inventory account by a charge to cost of sales. Your audit also disclosed the following information abo
inventory.
e. Total debits to certain accounts during December are:
Purchases P 74,100.00
Direct Labor 36,300
Manufacturing Overhead ex 75,600
Cost of Sales 205,800
f. The cost of Sales of P 205,800 included direct labor of P 41,400
g. Normal scrap loss on established product lines is negligible. However a special offer started and comp
had excessive scrap loss of P 2,400, which was changed to manufacturing overfead expense.

Questions:
1. What is the inventory per physical count on November 30,2016?
2. What is the correct amountof the physical inventory at November 30,2016?

Without prejudice to your answers to questions 1 and 2, assume that the correct amount
November 30,2016, was P 173,100.

3. What is the material inventory at December 31,2016?

4. What is the amount of direct labor cost included in the December 31,2016 inventory?
5. What is the correct inventory at December 31,2016?

Answer:

1. Inventory per books (Nov 30,20x6) P 181,710

 Understatement of book inventory 9,000
Inventory per physical count, November 30 P 190,720

2. Inventory per physical count, Nov 30 P 190,710

Pricing Errors 6,600
Footing and Extension errors 450
Obsolete materials (750)
Correct Physical Inventory, November 30 P 183,810

3. Assumed correct physical Inv, November 30 P 173,000

Direct Labo included (30,000)
Overhead included (200% x P30,000) (600,000)
Materials Inventory, November 30 83,100
Purchases 74,100
Total materials available 157,200

Cost of Sales P 205,800

Direct Labor Cost (41,400)
Overhead included (82,800)
Obsolete Items (750)
(80,850)
Scrap Loss in new product (2,400)
Materials Inventory in December 31 P 73,950

4. Direct Labor Inventory, November 30 P 30,000

Direct labor cost incurred in Dec 36,000
Total 66,000
Charges to cost of sales in December (41,400)
Direct Labor in Inventory December 31 P 24,900

5. Materials inventory, December 31 P 73,950

Direct Labor Cost 24,900
Overhead (200% x P 24,900) 49,800
Inventory, Decemeber 31 , 20x6 P 148,650
 mber 31,2016. To reduce the workload at year-end,
November 30,2016.

n process, I on a perpetual basis and it uses the

,710 was understated by P 9,000. To avoid distorting

k inventory until year-end excel for

hysical inventory.
erhead was included at the rate of
as correct and the overhead rate was proper.
ring December, these materials were removed from
d the following information about the December 31,2016

special offer started and completed during December

ng overfead expense.

ber 30,2016?

ume that the correct amount of the inventory at

er 31,2016 inventory?