PROBLEM NO.

1
Presented below is a list of items that may or may not reported as inventory in a company’s
December 31 balance sheet.

1. Goods out on consignment at another company’s store P800,000

2. Goods sold on installment basis 100,000
3. Goods purchased f.o.b. shipping point that are in transit
at December 31 120,000
4. Goods purchased f.o.b. destination that are in transit at
December 31 200,000
5. Goods sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the inventory 300,000
6. Goods sold where large returns are predictable 280,000
7. Goods sold f.o.b. shipping point that are in transit
December 31 120,000
8. Freight charges on goods purchased 80,000
9. Factory labor costs incurred on goods still unsold 50,000
10. Interest cost incurred for inventories that are routinely
manufactured 40,000
11. Costs incurred to advertise goods held for resale 20,000
12. Materials on hand not yet placed into production 350,000
13. Office supplies 10,000
14. Raw materials on which a the company has started
production, but which are not completely processed 280,000
15. Factory supplies 20,000
16. Goods held on consignment from another company 450,000
17. Costs identified with units completed but not yet sold 260,000
18. Goods sold f.o.b. destination that are in transit at
December 31 40,000
19. Temporary investment in stocks and bonds that will be
resold in the near future 500,000

Question:
How much of these items would typically be reported as inventory in the financial statements?
a. P2,300,000 c. P2,260,000
b. P2,000,000 d. P2,220,000
PROBLEM NO. 2
In connection with the Alcala Manufacturing Company, following our items related to inventory:
(a) A packing case containing a product costing P100,000 was standing in the shipping room when
the physical inventory was taken. It was not included in the inventory because it was marked
“Hold for shipping instructions.” The customer’s order was dated December 18, but the case was
shipped and the costumer billed on January 10, 2020.

(b) Merchandise costing P600,000 was received on December 28, 2019, and the invoice was
recorded. The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.

(c) Merchandise received on January 6, 2020, costing P700,000 was entered in purchase register
on January 7. The invoice showed shipment was made FOB shipping point on December 31,
2019. Because it was not on hand during the inventory count, it was not included.

(d) A special machine costing P200,000, fabricated to order for a particular customer, was finished
in the shipping room on December 30. The customer was billed for P300,000 on that date and
the machine was excluded from inventory although it was shipped January 4, 2020.

(e) Merchandise costing P200,000 was received on January 6, 2020, and the related purchase The
invoice was recorded January 5. invoice showed the shipment was made on December 29,
2019, FOB destination.

(f) Merchandise costing P150,000 was sold on an installment basis on December 15. The customer
took possession of the goods on that date. The merchandise was included in inventory because
Alcala still holds legal title. Historical experience suggests that full payment on installment sale
is received approximately 99% of the time.

(g) Goods costing P500,000 were sold and delivered on December 20. The goods were included in
the inventory because the sale was accompanied by a purchase agreement requiring Alcala to
buy back the inventory in February 2020.

Question:
Based on the above information, how much of these items should be included in the inventory
balance at December 31, 2019?
a. P1,300,000 c. P1,650,000
b. P 800,000 d. P1,050,000
PROBLEM NO. 3
The Anda Company is on a calendar year basis. Below are the following data.
a. Goods in transit shipped FOB destination by a supplier, in the amount of P100,000, had been
excluded from the inventory, and further testing revealed that the purchase had been recorded.

b. Goods costing P50,000 had been received, included in inventory, and recorded as a purchase.
However, upon your inspection the goods were found to be defective and would be immediately
returned.

c. Materials costing P250,000 and billed on December 30 at a selling price of P320,000, had been
segregated in the warehouse for shipment to a customer. The materials had been excluded from
inventory as a signed purchase order had been received from the customer. Terms, FOB
destination.

d. Goods costing P70,000 was out on consignment with Hermie Company. Since the monthly
statement from Hermie Company listed those materials as on hand, the items had been
excluded from the final inventory and invoiced on December 31 at P80,000.

e. The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB point of
shipment on December 31. However, this inventory was found to be included in the final
inventory. The sale was properly recorded in 2018.

f. Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped at
December 31, and were not included in the inventory. A review of the customer’s purchase order
set forth terms as FOB destination. The sale had not been recorded.

g. Your client has an invoice from a supplier, terms FOB shipping point but the goods had not
arrived as yet. However, these materials costing P170,000 had been included in the inventory
count, but no entry had been made for their purchase.

h. Merchandise costing P200,000 had been recorded as a purchase but not included as inventory.
Terms of sale are FOB shipping point according to the supplier’s invoice which had arrived at
December 31.

Further inspection of the client’s records revealed the following December 31, 2019 balances:
Inventory, P1,100,000; Accounts receivable, P580,000; Accounts payable, P690,000; Net sales,
P5,050,000; Net purchases, P2,300,000; Net income, P510,000.

QUESTIONS:
Based on the above information, determine the adjusted balances of following as of
December 31, 2019:
1. Inventory
a. P1,230,000 c. P1,550,000
b. P1,650,000 d. P1,480,000
2. Accounts payable
a. P710,000 c. P810,000
b. P540,000 d. P760,000
3. Net sales
a. P4,550,000 c. P4,730,000
b. P4,650,000 d. P4,970,000
4. Net purchases
a. P2,370,000 c. P2,150,000
b. P2,420,000 d. P2,320,000
5. Net income
a. P220,000 c. P540,000
b. P290,000 d. P550,000

PROBLEM NO. 4
Dasol Factory started operations in 2019. Dasol manufactures bath towels. 60% of the production
are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen.
During 2019, 6,000 dozens were produced at an average cost of P360 per dozen. The inventory at
the end of the year was as follows:
220 dozens “Class A” @ P360 P 79,200
300 dozens “Class B” @ P360 108,000
P187,200
QUESTIONS:
Using the relative sales value method, which management considers as a more equitable basis of
cost distribution, answer the following:
1. How much of the total cost should be allocated to “Class A”?
a. P1,296,000 c. P1,284,324
b. P1,620,000 d. P 925,714
2. How much of the total cost should be allocated to “Class B”?
a. P540,000 c. P 864,000
b. P875,676 d. P1,234,286
3. How much is the value of inventory as of December 31, 2019?
a. P187,200 c. P117,000
b. P187,946 d. P166,500
4. How much is the cost of sales for the year 2019?
a. P1,972,800 c. P2,043,000
b. P1,993,500 d. P1,972,054
5. How much is the gross profit for the year 2019?
a. P242,200 c. P221,500

PROBLEM NO. 5
The Mangaldan Merchandising Company is a leading distributor of kitchen wares. The company
uses the first-in, first-out method of calculating the cost of goods sold. The following information
concerning two of the company’s products is taken from the month of May:
PANS KETTLES
No. of Unit No. of Unit
units cost units cost
May 1, beginning inventory 10,000 P 60 6,000 P 40

Purchases:
May 15 14,000 65 9,000 P 42
May 25 6,000 75

Sales for the month 20,000 10,000

(@ P80) (@ P44)

On May 31, Mangaldan’s suppliers reduced their price from the last purchase price by the following
percentages:
Pans…………………..25% Kettles…………………20%

Accordingly, the company agreed to reduce selling prices by 15% on all items beginning June 1.

Mangaldan Merchandising Company’s selling costs are calculated at 10% of selling price. Both
products have a normal profit of 30% on sales prices (after selling costs)

QUESTIONS:
Based on the above information answer the following:
1. Total cost of Pans as of May 31 is
a. P710,000 c. P600,000
b. P653,300 d. P612,000
2. Total cost of Kettles as of May 31 is
a. P210,000 c. P200,000
b. P206,000 d. P168,300
3. The inventory at May 31 should be valued at
a. P768,300 c. P920,000
b. P780,300 d. P890,000
4. The loss on inventory write down for the month of May is
a. P139,700 c. P29,300
b. P137,300 d. P27,600
5. The cost of sales, before loss on inventory write down, for the month of May is
a. P1,778,000 c. P1,797,700
b. P1,685,600 d. P1,658,000
PROBLEM NO. 6
On March 31, 2019 San Fabian Company had a fire which completely destroyed the factory
building and inventory of goods in process; some of the equipment was saved.

After the fire, a physical inventory was taken. The material was valued at P750,000 and the finished
goods at P620,000.

The inventories on January 1, 2019 consisted of:

Materials P 310,000
Goods in process 1,215,000
Finished goods 1,700,000
Total P3,225,000

A review of the accounting records disclosed that the sales and gross profit on sales for the last
three years were:
Sales Gross profit
2003 P8,000,000 P2,400,000
2004 7,600,000 2,215,000
2005 5,000,000 1,776,000

The sales for the first three months of 2019 were P3,000,000. Material purchases were P1,250,000,
transportation on purchases was P100,000 and direct labor cost for the three months was
P1,000,000. For the past two years, factory overhead cost has been 80% of direct labor cost.

QUESTIONS:
Based on the above information, compute the following:
1. The most likely gross profit rate to be used in estimating the inventory of goods in process
destroyed by fire
a. 31.55% c. 35.52%
b. 32.76% d. 36.00%
2. Total cost of goods placed in process
a. P2,710,000 c. P3,925,000
b. P973,500 d. P4,375,000
3. Total cost of goods manufactured
a. P3,133,500 c. P 854,400
b. P 973,500 d. P3,014,400
4. Inventory of goods in process lost
a. P 791,500 c. P 119,100
b. P1,360,600 d. P2,951,500
PROBLEM NO. 7
You obtained the following information in connection with your audit of Villasis Corporation:
Cost Retail
Beginning inventory P1,987,200 P2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000

Villasis Corp. uses the retail inventory method in estimating the values of its inventories and costs.

QUESTIONS:
Based on the above information, answer the following:
1. The cost ratio to be used considering the provisions of PAS 2 is
a. 68.58% c. 70.00%
b. 69.20% d. 75.78%
2. The estimated ending inventory at retail is
a. P2,300,000 c. P1,940,000
b. P2,060,000 d. P1,860,000
3. The estimated ending inventory at cost is
a. P1,412,786 c. P1,302,000
b. P1,275,588 d. P1,287,120
4. The estimated cost of goods sold is
a. P5,468,400 c. P5,357,614
b. P5,494,812 d. P4,685,117