MITCH T.

MINGLANA
BSA 301

Assignment 1 audit of inventories

PROBLEM 1: Compute for the inventory to be reported in the financial statement

ANSWER: P2,400,000

Letters A, C, E, H, I, L, N, O, Q, and R would be reported as inventory in the Financial

Statement.

SOLUTION:
Goods sold on Consignment at another company’s store P 800,000
Goods purchased FOB shipping point that are in transit at 12/31 120,000
Goods sold to another company, for which our company has signed
An agreement to repurchase at set price that covers all costs
Related to the inventory 300,000
Freight charges on goods purchased 80,000
Factory labor cost incurred on goods still unsold 50,000
Materials on hand not yet placed into production 350,000
Raw Materials on which the company has started production,
But where not completely processed 280,000
Factory Supplies 120,000
Costs identified with units completed but not yet sold 260,000
Goods sold FOB destination that are in transit at 12/31 40,000
TOTAL INVENTORY TO BE REPORTED P2,400,000
PROBLEM 2:

Compute for:
1. How much is the adjusted inventory as of July 1 2019?
P630,000

2. How much is the adjusted purchases for the fiscal year ended June 30 2020
P3,840,000

3. How much is the adjusted inventory as of June 30 2020?

P960,000

SOLUTIONS:
Solutions to number 1-3
Inventory (7/1/2019) Purchases Inventory (6/30/2020)
Unadjusted P500,000 P3,600,000 P700,000
Balances
Add (deduct)Adj:
Item a 130,000 - -
Item b - (54,000) -
Item c - 186,000 186,000
Item d - - 74,000
Item e - -
Item f - 108,000 -
Net Adjustment 130,000 240,000 260,000

Adjusted Balances P630,000 P3,840,000 P960,000

4. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30
2020

ANSWER AND SOLUTION:

Inventory, July 1, 2019 P630,000
Add: Purchases 3,840,000
Total goods available for sale P4,470,000
Less: Inventory, June 30, 2020 (960,000)
Cost of Goods Sold P3,510,000
 5. Show the necessary adjusting journal entry as of June 30, 2020 (including retained
earnings

ANSWER AND SOLUTION:

Inventory, 7/1/2019 P130,000

Purchases 240,000
Inventory, 6/30/2020 260,000
Retained earnings (P130,000-P54,000) P76,000
Vouchers payable (P186,000+P108,000) 294,000
Cost of Sales 260,000

PROBLEM 3:

Compute for
1. Raw materials inventory as of December 31 2020

ANSWER AND SOLUTION:

UNITS
Raw Materials, 1/1/2020 35,000
Add: Purchases 265,000
Raw materials available for use 300,000
Less: raw materials, 12/31/2020 (50,000)
Goods placed in process 250,000
Less: work in process, 12/31/2020 (25,000)
Goods Manufactured 225,000
Finished Goods, 1/1/2020 15,000
Total goods available for sale 240,000
Less: finished goods, 12/31/2020 (40,000)
Goods Sold 200,000

Raw Materials, 12/31/2020 (50,000 units x P20,80) P1,040,000

2. WIP inventory as of December 31 2020

ANSWER AND SOLUTION:

Raw Materials (10,000 units xP20.80) +
(15,000 units xP20.40) P514,000
Direct labor (25,000 unitsx80%xP20) 400,000
Factory overhead (25,000 unitsx80%xP30) 600,000
Work In process. 12/31/2020 P1,514,000

Labor Unit cost (P4,900,000/245,000units) P20

 Overhead unit cost (P7,350,000/245,000 units) P30

*Equivalent production for labor and overhead

Started, finished and sold (200,000 units-15,000 units)
X100% 185,000
Started, finished and on hand (40,000 unitsx100%) 40,000
Started, and in process (25,000 unitsx80%) 20,000
Total 245,000

3. Finished Goods inventory as of December 31 2020

ANSWER AND SOLUTION:

Raw materials (30,000 unitsxP20.40) +(10,000unitsxP20) P812,000
Direct labor (40,000 unitsxP20) 800,000
Factory overhead (40,000 unitsxP30) 1,200,000
Finished goods inventory, 12/31/2020 P2,812,000

4. Cost of goods sold for the year ended December 31 2020

ANSWER AND SOLUTION:

Raw Materials P720,200
Add: Purchases 5,232,800
Raw Materials available for use 5,953,000
Less: Raw materials,12/31/2020 (1,040,000)
Direct materials used 4,913,000
Direct Labor 4,900,000
Factory overhead 7,350,000
Total manufacturing cost 17,163,000
Add: work in process,1/1/2020 -
Total cost placed in process 17,163,000
Less: work in process, 12/31/2020 1,514,000
Cost of goods manufactured 15,649,000
Add: finished goods,1/1/2020 1,240,000
Total goods available for sale 16,889,000
Less: finished goods, 12/31/2020 2,812,000
Cost of Goods Sold P14,077,000