Computation of adjusted inventory and related accounts

Bulls Company, a manufacturer of small tools, provided the following information from its
accounting records for the year ended December 31, 2015:

Inventory at December 31, 2015

(based on physical count on Dec. 31, 2015) P 980,000
Accounts Payable at December 31, 2015 586,000
Net Sales (sales less sales returns) 10,048,000

Additional information follows:

a. Goods held on consignment from Chicago to Bulls amounting to P9,000 were included in
the physical count of goods in Bulls’ warehouse on December 31, 2015, and in accounts
payable at December 31, 2015.

b. Retailers were holding P50,000, at cost, of goods on consignment from Bulls, at their
stores on December 31, 2015.

c. Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2015. These goods had a cost of P31,000 and were billed at P40,000. The
shipment was on Bulls’ loading dock waiting to be picked up by the common carrier.

d. P15,000 worth of parts which were purchased from Deng Co. and paid for in December
2015 were sold in the last week of 2015 and appropriately recorded as sales of P21,000.
The parts were included in the physical count on December 31, 2015 because the parts
were on the loading dock waiting to be picked up by the customer.

e. Goods were in transit from a vendor to Bulls on December 31, 2015. The invoice cost
was P71,000 and the goods were shipped FOB shipping point on December 29, 2015.

f. Work in process inventory costing P30,000 was sent to an outside processor for plating
on December 30, 2015.

g. Goods returned by customers and held pending inspection in the returned goods area on
December 31, 2015 were not included in the physical count. On January 8, 2016, the
tools costing P32,000 were inspected and returned to inventory. Credit memos totaling
P47,000 were issued to the customers on the same date.

h. Goods shipped to a customer FOB destination on December 26, 2015 were in transit at
December 31, 2015, and had a cost of P21,000. Upon notification of receipt by the
customer on January 2, 2016, Bulls issued a sales invoice for P42,000.

i. Goods, with an invoice cost of P27,000, received from a vendor at 5:00 p.m. on
December 31, 2015, were recorded on a receiving report dated January 2, 2016. The
goods were not included in the physical count, but the invoice was included in accounts
payable at December 31, 2015.
 j. Goods received from a vendor on December 26, 2015 were included in the physical
count. However, the related P56,000 vendor invoice was not included in accounts
payable at December 31, 2015, because the accounts payable copy of the receiving report
was lost.

k. On January 3, 2016, a monthly freight bill in the amount of P6,000 was received. The bill
specifically related to merchandise purchased in December 2015, one-half of which was
still in the inventory at December 31, 2015. The freight charges were not included in
either the inventory or accounts payable at December 31, 2015.

REQUIRED:

1. Determine the following as of and for the year ended December 31, 2015:
a. Inventory
b. Net Sales
c. Accounts Payable

2. Adjusting entries as of December 31, 2015

SOLUTION:

Requirement No. 1
Inventor Accts.
y Payable Sales, net

10,048,00
Unadjusted balances 980,000 586,000 0
Add (deduct) adjustments:

a - Goods held on consignment (9,000) (9,000) -

b - Goods out on consignment 50,000 - -

c - Unshipped goods, erroneously
billed - - (40,000)
d - Goods with constructive
delivery (15,000) - -
e - Goods purchased FOB
shipping point 71,000 71,000 -

f - WIP sent to outside processor 30,000 - -

g - Goods returned by customers 32,000 - (47,000)

h - Goods sold FOB destination 21,000 - -

 i - Goods excluded from physical
count 27,000 - -
j - Unrecorded purchases - 56,000 -

k - Unrecorded freight-in 3,000 6,000

Adjusted balances 1,190,000 710,000 9,961,000

Requirement No. 2
a
) Accounts payable 9,000
Inventory 9,000

b
) Inventory 50,000
P/L summary (Cost of sales) 50,000

c
) Sales 40,000
Acccounts receivable 40,000

d
) P/L summary (Cost of sales) 15,000
Inventory 15,000

e
) Inventory 71,000
Accounts payable 71,000

f) Inventory 30,000
P/L summary (Cost of sales) 30,000

g
) Inventory 32,000
P/L summary (Cost of sales) 32,000

Sales returns 47,000

Acccounts receivable 47,000

h
) Inventory 21,000
P/L summary (Cost of sales) 21,000

i) Inventory 27,000
P/L summary (Cost of sales) 27,000
j) P/L summary (Cost of sales) 56,000
Accounts payable 56,000

k
) Inventory 3,000

P/L summary (Cost of sales) 3,000

Accounts payable 6,000