Review to Inventories

Problem 3-1

Costs Inventoriable or Not

1. Costs of transporting goods to customers on sale, P2,500
2. Non-recoverable purchase taxes charged to customers on sale. P12,000.
3. Non-recoverable sales taxes, P14,440.
4. Commission payable to salesmen on the sale of the goods, P14,500.
5. Provisions for bad and doubtful debts in relation to trade receivables,
P56,000
6. Costs of the accounts department, P140,000
7. Head office costs relating to the overall management of the business,
P234,000.
8. Borrowing cost incurred on inventories that takes substantial amount of
the time to create, P122,000.
9. Storage cost for a maturing product, P56,000.
10. Selling costs, P45,600.
11. Non-production overhead cost of designing products for specific
customers, P10,000.
12. Storage cost of finished goods, P23,000
13. Fixed administration costs/overheads (rent for office), P450,000.
14. Insurance on in transit inventories, P17,800.
15. Freight incurred when the inventories were returned and redelivered,
P34,100.
16. Foreign exchange differences arising directly on the recent acquisition
of inventories invoiced in a foreign currency. The peso equivalent when
acquired is P567,000 and the peso equivalent of the merchandise when
paid is P577,000.

Required: Identify the cost as either Inventoriable of not and determine the amount to be included as
part of inventory.

Solution:

Problem 3-2

A manufacturing company has budgeted fixed production overheads amounting to P500,000.

The normal capacity is 100,000 units.

Required: Account for the fixed production overhead and compute for the fixed production overhead
per unit assuming the actual production is:

CASE NO. 1: 100,000 units

CASE NO. 2: 80,000 units

CASE NO. 3: 120,000 units

Problem 3-3

As part of your engagement to audit the financial statements of Acuna Company for the year ended
December 31. You have been assigned the merchandise inventory account.

Required: Compute for the correct amount of inventory.

Answer:

Solution:

Problem 3-4

Answer:

Solution:

Problem 3-5

At the beginning of January 1, Tristan Company has 2,000 inventories costing P20 per unit. The
following chronological transactions transpired during the year:

1. Purchased on account 3,000 units of inventory at P20 per unit.

2. Sold on account 2,500 units of inventory for P50 per unit.
3. Purchased on account 4,000 units of inventory at P20 per unit.
4. Sold on account 3,000 units of inventory for P50 per unit.
5. On December 31, physical count revealed that 3,500 units were on hand.

Required: Prepare all the necessary journal entries using:

a. Perpetual inventory system

1. Merchandise inventory 60,000

Accounts payable 60,000
(3,000 units x P20)

2. Accounts receivable 125,000

Sales 125,000
(2,500 units x P50)

Cost of goods sold 50,000

Merchandise inventory 50,000
(2,500 units x P20)
 3. Merchandise inventory 80,000
Accounts payable 80,000
(4,000 units x P20)

4. Accounts receivable 150,000

Sales 150,000
(3,000 units x P50)

Cost of goods sold 60,000

Merchandise inventory 60,000
(3,000 units x P20)

5.

b. Periodic inventory system

1. Purchases 60,000
Accounts payable 60,000
(3,000 units x P20)

2. Accounts receivable 125,000

Sales 125,000
(2,500 units x P50)

3. Purchases 80,000
Accounts payable 80,000
(4,000 units x P20)

4. Accounts receivable 150,000

Sales 150,000
(3,000 units x P50)

5.