EASY

1. Yu Mincho Company bought merchandise on January 2, 2006 from Yu Mincha Company

costing P15,000; terms, less 20%, 20% down payment, balance 2/10, n/30. Two days after,
P2,000 worth of merchandise was returned due to wrong specification. Yu Minchu
Company paid the account within the discount period. How much Yu Mincho Company
paid to Yu Mincha Company?
a. P 7,600 b. P 7,448 c. P 7,408 d. P 7,360

Answer - B
Buyer Seller
Purchases 12,000 Accounts Receivable 9,600
Cash 2,400 Cash 2,400
Accounts Payable 9,600 Sales 12,000

Accounts payable 2,000 Sales 2,000

Purchases 2,000 Accounts Receivable 2,000

Accounts payable 7,600 Cash 7,448

Purch. Disc. 152 Sales Discount 152
Cash 7,448 Accounts Receivable 7,600

2. The inventory on hand at December 31 for Cloud Company is valued at a cost of P947,800.
The following items were not included in this inventory amount:
a. Purchased goods, in transit, shipped FOB destination invoice price P32,000, which included
freight charges of P1,600.
b. Goods held on consignment by Cloud Company at a sales price of P28,000, including sales
commission of 20% of the sales price.
c. Goods sold to Sky Company, under terms FOB destination, invoiced for P18,500 which
includes P1,000 freight charges to deliver the goods. Goods are in transit.
d. Purchased goods in transit, terms FOB shipping, invoice price P48,000, freight cost,
P3,000.
e. Goods out on consignment to Storm Company, sales price P36,400, shipping cost of
P2,000.
Assuming that the company’s selling price is 140% of inventory cost, the adjusted cost of Cloud
Company’s inventory at December 31 should be:
a. P1,039,300 c. P1,055,700
b. P1,039,500 d. P1,037,300

ASNWER: A
Unadjusted inventory P 947,800
Sold to Sky Company FOB destination:
18,500-1,000= 17,500/140%= 12,500
Purchased FOB shipping: 51,000
Out on consignment:
36,400/140%= 26,000+2000= 28,000
P1,039,300
3. Buzzfeed Company provided the following data for the current year:

Merchandise purchased for resale 16,000,000

Freight in 70,000
Freight out 50,000
Purchase returns 100,000
Interest on inventory loans 250,000

Compute for the inventoriable cost of the purchase.

a. 15,970,000 c. 15,970,000
b. 16,020,000 d. 16,070,000

Answer A

Merchandise purchased for resale 16,000,000

Freight in 70,000
Total 16,070,000
Purchase Returns (100,000)
Inventoriable Cost 15,970,000
4. On December 28, 2017, Asuncion Company purchased goods costing P 500,000 FOB
Destination. These goods were received on December 31, 2017. 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
On December 31, 2017, what total cost should be included in inventory?
a. 545,000
b. 535,000
c. 520,000
d. 500,000

Answer: D
When goods are purchased FOB destination, the seller is responsible for costs incurred in
transporting the goods to the buyer.

5. The PRINCE COMPANY’S year-end inventory based on physical count conducted on

December 31, 2006, amounted to P885,000. Your cut-off examination disclosed the following
information”:

1. Included in the physical count were goods billed to customer FOB shipping point on
December 31, 2006. These goods had a cost of P28,000 and were billed at P35,000. The
shipment was on PRINCE’S loading dock waiting to be picked up by the common carrier.
2. Goods were in transit from a vendor to PRINCE on December 31, 2006. The invoice cost
was P50,000 and the goods were shipped FOB Shipping on Dec. 29,2006.
3. Work in process inventory costing P20,000 was sent to an outside processor for plating on
Dec. 30, 2006.
4. Goods returned by customers and held pending inspection in the returned goods area on
Dec. 31, 2006, were not included in the physical count. On January 8, 2007, the goods
costing P26,000 were inspected and returned to inventory. Credit memos totaling P40,000
were issued.
5. Goods shipped to customer FOB destination on Dec. 26, 2006, were in transit at Dec. 31,
2006 and had a cost of P25,000. Upon notification of receipt by the customer on January 2,
2007, the company issued a sales invoice for P42,000.
6. Goods received from a vendor on Dec. 26, 2006, were included in the physical count.
However the related P60,000 vendor invoice was not included in Accounts Payable as
December 31, 2006, because the Accounts Payable copy of the receiving report was lost.
7. On January 3, 2007, a monthly freight bill in the amount of P4,000 was received. This was
specifically related to merchandise purchased in Dec. 31, 2006. The freight charges were
not included in either the inventory or in accounts payable at Dec. 31, 2006.

The inventory per audit at year-end is:

a. P 981,000 b. P 959,000 c. P 1,006,000 d. P 1,010,000

ANSWER D
Solution
1. Sales 35,000
Accounts receivable 35,000
2. Inventory 50,000
Cost of sales 50,000
Purchases 50,000
Accounts payable 50,000
3. Inventory 20,000
Cost of sales 20,000
4. Inventory 26,000
Cost of sales 26,000
Sales 40,000
Accounts receivable 40,000
5. Inventory 25,000
Cost of sales 25,000
6. Purchases 60,000
Accounts payable 60,000
7. Inventory 4,000
Accounts payable 4,000
 AVERAGE

1. The records of Ben’s Department Store report the following data for the month of January:
Beginning inventory at cost P 440,000
Beginning inventory at sales price 800,000
Purchases at cost 4,500,000
Initial markup on purchases 2,900,000
Purchase returns at cost 240,000
Purchase returns at sales price 350,000
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
Net sales 6,500,000
Sales allowance 100,000
Sales returns 500,000
Employee discounts 200,000
Theft and other losses 100,000

Using the average retail inventory method, Ben’s ending inventory is:
a. P360000 c. P420,000
b. P384,000 d. P448,000

ANSWER B
Cost Retail
Beginning inventory P 440,000 P 800,000
Purchases 4,500,000 7,400,000
Purchase returns (240,000)
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
GAS 4,800,000 / 7,500,000 = 64%
Net sales 6,500,000
Sales allowance 100,000
Employee discounts 200,000
Theft and other losses 100,000 6,900,000
Ending inventory 600,000 *64%= P 384,000

2. Worth It Company provided the following data:

Items counted in the bodega 20,000,000

Items in the shipping department 275,000
Items included in the count, damaged and unsalable 75,000
Items included in the count specifically segregated per sales contract 350,000
Items in receiving department, returned by customer in good condition 55,000
Items ordered, invoice received but goods not received. Freight paid by seller. 320,000
Items on counter for sale 650,000
Items shipped today, invoice mailed, FOB Destination 150,000
Items ordered and in the receiving department, invoice not received 510,000
Items shipped today, invoice mailed, FOB Shipping Point 290,000
Items currently being used for window display 200,000
Items in receiving department, refused by us because of damage 180,000

How much is the correct amount of inventory?

a. 22,025,000 c. 21,415,000
b. 22,205,000 d. 21,735,000

Answer C

Items counted in the bodega 20,000,000

Items in receiving department, returned by customer, in good condition 55,000
Items ordered and in the receiving department invoice not received 510,000
Items shipped today, invoice mailed, FOB Destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 650,000
Items in shipping department 275,000
Items included in the count specifically segregated per sales contract (350,000)
Items included in the count, damaged and unsalable (75,000)
21,415,000

3. The following information was provided by the bookkeeper of Cow Corporation:

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 P 13.00
8 62,500 12.50
11 75,000 12.00
24 70,000 12.40
There were 108,500 units on hand on June 1 with a total cost of P 1,450,000.
Cow Corporation uses a periodic FIFO costing system. The company’s gross profit for June was
P 2,058,750.
How many units were on hand on June 30?
a. 80,000 c. 28,500
b. 177,500 d. 149,000
Answer: A
Inventory quantity, June 1 108,500
Add: Units purchased during June 257,500
Units available for sale 366,000
Less: Units sold during June 286,000
Inventory quantity, June 30 80,000

4. Your audit of HIRO COMPANY for the year 2006 disclosed the following:
a. The December 31 inventory was determined by a physical count on December 28 and based
on such count, the inventory was recorded by:
Inventory 1,400,000
Cost of sales 1,400,000
b. The 2006 ledger shows a sales balance of P20,000,000.
c. The company sells a mark-up of 20% based on sales.
d. The company recognizes sales upon passage of title to the customers.
e. All customers are within a four-day delivery area.
The sales register for December, 2006 and January, 2007, showed the following details:

December Register
Invoice No. FOB Terms Date Shipped Amount
300 Destination 12/30 P50,000
301 Shipping point 12/30 62,500
302 Destination 12/23 47,500
303 Destination 12/24 82,500
304 Shipping point 01/02 56,000
305 Shipping point 12/29 90,000

January Register
Invoice No. FOB Terms Date Shipped Amount
306 Destination 12/29 67,500
307 Shipping point 12/29 74,500
308 Destination 01/02 140,000
309 Shipping point 01/04 73,000
310 Shipping point 12/27 67,500
The adjusted inventory at December 31, 2006 is:
a. P 1,645,412 b. P 1,218,400 c. P 1,164,400 d. P 1,154,588

ANSWER B
Unadjusted inventory 1,400,000
(2) ( 50,000)
(4) ( 72,000)
(6) ( 59,600)
(8) _________
Adjusted inventory 1,218,400

5. Marlisa Company’s December 31, 2005 and December 31, 2006 inventory is P35,000 and
P27,000, respectively. The beginning and ending inventories were determined by physical
count of the goods on hand on those dates, and no reconciling items were considered. All
purchases are f.o.b. shipping point. In the course of your examination of the inventory cut-off,
both the beginning and ending of each year, you discover the following facts:

Beginning of the year

a. Invoices totaling P3,260 were entered in the voucher register on January, but the goods
were received during December.

b. December invoices totaling P4,100 were entered in the voucher register in December, but
the goods were not received until January.

End of the Year

c. Invoices totaling P7,260 were entered in the voucher register in January but the goods were
received in December.

d. December invoices totaling P3,600 were entered in the voucher register in December, but
the goods were not received until January.

e. Invoices totaling P1,500 were entered in the voucher register in January, and the goods were
received in January, but the invoices were dated December.

Based on your analysis and the information above

How much is the adjusted balance of the Purchases account at December 31, 2006 assuming the amount
of Purchases in the trial balance is P5,176,000?

a. P 5,170,566 b. P 5,180,000 c. P 5,181,500 d. P 5,185,200

ANSWER C

Solution
a. Retained earnings 3,260

Purchases 3,260

b. Beginning inventory 4,100

Retained earnings 4,100

c. Purchases 7,260

Accounts payable 7,260

d. Inventory 3,600

Cost of sales 3,600

e. Inventory 1,500

Cost of sales 1,500

Purchases 1,500

Accounts payable 1,500

DIFFICULT

1. A public limited company, Cromwell Dairy Products, produces milk on its farms. As of
January 1, Cromwell has a stock of 1,050 cows (average age, 2 years old) and 150 heifers
(average age, 1 year old). Cromwell purchased 375 heifers, average age 1 year old, on July 1. No
animals were born or sold during the year. The unit values less estimated costs to sell were:

1 - year old animal at December 31 P3,200

2 - year old animal at December 31 4,500
1.5 - year old animal at December 31 3,600
3 - year old animal at December 31 5,000
1 - year old animal at Jan 1 and Jul 1 3,000
2 - year old animal at January 1 4,000

The increase in value of biological assets in the current period due to physical changes is:
a. P870,000 c. P590,000
b. P720,000 d. P780,000

Solution: A

Dec 31 Price changes Physical changes Difference x Stock

4,500-4,000=500 5,000-4,000=1,000 500 1050 = 525,000
 3,200-3,000=200 4,500-3,000=1,500 1,300 150 = 195,000
3,200-3,000=200 3,600-3,000=600 400 375 = 150,000
P870,000
2. The Accounting Staff of KAYARANIMACPARAKO Company submitted an inventory list at
December 31, 2018 which showed a total of 1,500,000. The following information which may or
may not be relevant to the inventory value submitted are given below:
a. Excluded from the inventory were merchandise costing P24,000 because they were
transferred to the delivery department for packaging on December 28 to be shipped on
the second day of January the following year.
b. The bill of lading and other import documents on a merchandise were delivered by the
bank and the trust receipt accepted by the company on December 26. Taxes and duties
have been paid on this shipment but the customs broker has not delivered the
merchandise until January 7. Delivered cost of the shipment totaled P240,000. This
shipment was not included in the inventory in December 2018.
c. A review of the company’s purchase orders shows a commitment to buy P30,000 worth of
merchandise. This was not included in the inventory because the goods were received on
January 5, 2019.
d. Suppliers invoice for P9,000 worth of merchandise dated December 27, 2018 was
received through the mails on December 30, 2018 although the goods only arrived on
January 2, 2019. Shipment term is FOB Shipping Point. This item was included in the
December 31, 2018 inventory by the company.
e. Goods valued at P5,000 were received on December 25, 2018 for approval of the
company. The inventory team included this merchandise in the list but did not place any
value on it. On January 10, 2019 the company informed the supplier by long distance
telephone of the acceptance of the goods and the supplier’s invoice was received on
January 15, 2019.
f. On December 22, 2018, an order for P7,000 worth of merchandise was placed. This was
included in the year-end inventory although it was received only on January 5, 2011.
Seller shipped the goods FOB Destination.

Compute for the correct merchandise inventory of the company.

a. 1,756,500 c. 1,747,500
b. 1,516,000 d. 1,757,000

Answer D
Unadjusted inventory, 12/31/2018 1,500,000
Unshipped goods 24,000
Goods in the hands of customs broker 240,000
Goods in transit – FOB Destination (7,000)
Adjusted inventory, 12/31/18 1,757,000

3. Black Company conducted a physical count on December 31, 2017 which revealed inventory
with a cost of P 4,410,000. The audit identified that the following items were excluded from this
amount:
• Merchandise of P 610,000 is held by Black on consignment.
• Merchandise costing P 380,000 was shipped by Black FOB destination to a customer on
December 31, 2017. The customer expected to receive the goods on January 5, 2018.
• Merchandise costing P 460,000 was shipped by Black FOB shipping point to a customer
on December 29, 2017. The customer was expected to receive the goods on January 5,
2018.
• Merchandise costing P 830,000 was shipped by a vendor FOB destination on December
31, 2017 was received by Black on January 5, 2018.
• Merchandise costing P 510,000 purchased FOB shipping point was shipped by the
supplier on December 31, 2017 and received by Joy in January 5, 2018.
What is the correct amount of inventory on December 31, 2017?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000
Answer: A
Physical count 4,410,000
Goods sold in transit, FOB destination 380,000
Goods purchased in transit, FOB shipping point 510,000
Adjusted inventory 5,300,000

4. In conducting your audit of Ma. Angela Corporation, a company engaged in import and
wholesale business, for the fiscal year ended June 30, 2006, you determined that its internal
control system was good. Accordingly, you observed the physical inventory at an interim date,
May 31, 2006 instead of at June 30, 2006.

You obtained the following information from the company’s general ledger

Sales for eleven months ended May 31, 2006 P1,344,000

Sales for the fiscal year ended June 30, 2006 1,536,000
Purchases for eleven months ended May 31, 2006
(before audit adjestments0 1,080,000
Purchases for the fiscal year ended June 30, 2006 1,280,000
Inventory, July 1, 2005 140,000
Physical inventory, May 31, 2006 220,000

Your audit disclosed the following additional information.

(1) Shipments costing P12,000 were received in May and included in the physical inventory
but recorded as June purchases.

(2) Deposit of P4,000 made with vendor and charged to purchases in April 2006. Product
was shipped in July 2006.

(3) A shipment in June was damaged through the carelessness of the receiving department.
This shipment was later sold in June at its costs of P16,000.

In audit engagements in which interim physical inventories are observed, a frequently used
auditing procedure is to test the reasonableness of the year-end inventory by the application of
gross profit ratios. Based on the above and the result of your audit, you are to provide the
answers to the following:

The cost of goods sold during the month of June, 23003 using the gross profit ratio method is
a. P 132,000 b. P 148,000 c. P 144,000 d. P 160,000

ANSWER B
Solution
Beginning inventory 140,000
 Purchases – adjusted 1,088,000 (P1,080,000 + P12,000 – P4,000)
TGAS 1,228,000
Ending inventory 220,000
Cost of goods sold 1,008,000

Sales 1,344,000
COS 1,008,000
Gross Profit 336,000 25%

Sales for the fiscal year ended June 30, 2003 P 1,536,000
Sales for the eleven months ended May 31, 2003 1,344,000
Sales for the month of June 30, 2003 P 192,000
Less: Sales of goods at cost 16,000
Sales with gross profit P 176,000
x Cost Rate 25%
Total P 132,000
Plus: Sale of goods at cost 16,000
Total Cost of Goods Sold for June 2003 P 148,000

5. On April 15, 2007, a fire damaged the office and warehouse of KAREN MAE
CORPORATION. The only accounting record save was the general ledger, from which the
trial balance below was prepared.

KAREN MAE CORPORATION

TRIAL BALANCE
March 31, 2007
Cash 200,000
Accounts receivable 400,000
Inventory, December 31, 2006 750,000
Land 350,000
Building and equipment 1,100,000
Accumulated depreciation 413,000
Other Assets 36,000
Accounts payable 237,000
Other expense accruals 102,000
 Capital stock 1,000,000
Retained earnings 520,000
Sales 1,350,000
Purchases 520,000
Operating expenses 266,000 ________
3,622,000 3,622,000
______________________________________________________________________________

The following data and information have been gathered:

1. The fiscal year of the corporation ends on December 31.

2. An examination of the April bank statement and canceled checks revealed that checks written
during the period April 1-15 totaled P130,000: P57,000 paid to accounts payable as of
March 31, P34,000 for April merchandise shipments, and P39,000 paid for other expenses.
Deposits during the same period amounted to P129,500, which consisted of receipts on
account from customers with the exception of a P9,500 refund from a vendor for
merchandise returned in April.
3. Correspondence with suppliers revealed unrecorded obligations at April 15 of P106,000 for
April merchandise shipments, including P23,000 for shipments in transit on that date.
4. Customers acknowledge indebtedness of P360,000 at April 15, 2007. It was also estimated
that customers owed another P80,000 that will never be acknowledge or recovered. Of the
acknowledged indebtedness, P6,000 will probably be uncollectible.
5. The companies insuring the inventory agreed that the corporation’s fire loss claim should be
based on the assumption that the overall gross profit ratio for the past two years was in effect
during the current year. The corporation’s audited financial statements disclosed this
information:

Year Ended December 31

2006 2005
Net Sales 5,300,000 3,900,000
Net purchases 2,800,000 2,350,000
Beginning inventory 500,000 660,000
Ending inventory 750,000 500,000
6. Inventory with a cost of P70,000 was salvaged and sold for P35,000. The balance of the
inventory was a total loss.

Inventory loss at April 15, 2007 is:

a. P 477,000 b. P 512,000 c. P 535,000 d. P 570,000

ANSWER B
Solution

Computation of sales for the period Jan 1 - April 15, 2007

Sales up to March 31, 2007 P1,350,00
0
Sales for the period April 1-15
Accounts Receivable, 4.15.07 P440,000
Receipts from customers 120,000
P560,000
Less Accts. Receivable, 3.31.07 400,000
160,000
Total sales P1,510,00
0

1. Computation of the amount of Inventory Fire Loss

Inventory, December 31, 2006 P750,000
Add purchases for the period Jan.1 to April 15
Purchases up to March 31, 2007 P520,000
Payments for April mdse. Shipments 34,000
Unrecorded obligations for April mdse, shipment 106,000
Purchases returns (9,500) 650,500
Merchandise available for sale P1,400,50
0
Less cost of goods sold (P1,510,000 sales x 55%) 830,500
Estimated inventory on date of fire P570,000
Less: Proceeds from sale of salvaged mdse. P35,000
Shipments in transit 23,000 58,000
Inventory fire loss P512,000
Computation of average GP ratio:
2005 2006 Total
Net Sales P3,900,000 P5,300,000 P9,200,000
Beginning Inventory P660,000 P500,000 P660,000
Net purchases 2,350,000 2,800,000 5,150,000
Available P3,010,000 P3,300,000 P5,010,000
Ending Inventory 500,000 750,000 750,000
Cost of goods sold P2,510,000 P2,550,000 P5,060,000
Gross Profit P1,390,000 P2,750,000 P4,140,000
Gross Profit rate 45%

JOURNAL ENTRIES –
APRIL 1-15
Accounts payable 57,000
Cash 57,000
Purchases 34,000
Cash 34,000
Operating expenses 39,000
Cash 39,000
Cash 129,500
Accounts receivable 120,000
Purchase returns
9,500
Accounts receivable 160,000
Sales 160,000
Purchases 106,000
Accounts payable 106,000
Allowance for bad debts 80,000
Accounts receivable 80,000
Operating expenses (bad 86,000
debts)
Allow. for bad debts 86,000
(P80,000 + P6,000)
1. Cash balance at April 15, 2007 is: d. P 199,700
2. Accounts Receivable balance at April 15, 2007 is: a. P 350,500
3. Inventory at April 15, 2007 is: c. P 58,000
4. Accounts payable at April 15, 2007 is: d. P 286,000
5. Sales as of April 15, 2007 is: b. P1,510,000
6. Net purchases as of April 15, 2007 is: d. P 650,500
7. Cost of Sales as of April 15, 2007 is: d. P 830,500
8. Estimated inventory as of April 15, 2007 is: a. P 570,000
9. Inventory loss at April 15, 2007 is: b. P 512,000
10. The Average Gross Profit for two years (2005 and 2006) is: a. 45%