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FINANCIAL ACCOUNTING & REPORTING PROF. MICHAEL F. TIU

WEEK 5 OCTOBER 2022 BATCH

INVENTORY

1. The following items were being considered in determining the inventory balance to be reported at
December 31, 2022 by Garnet Company:
● Cost of materials on hand not yet placed into production, P750,000
● Freight charges on goods purchased, P150,000
● Freight charges on goods sold, P130,000
● Advances for materials ordered, P100,000 receivables
● Interest cost incurred for goods that are routinely manufactured over a short period of time,
P90,000 interest is only capitalizable if underlying asset is costly or takes long time to make
● Cost of factory supplies on hand, P250,000
● Cost of office supplies, P120,000, of which 60% has been used up
● Cost of materials which Garnet Company has placed in production, but which are not yet
completed, P360,000
● Factory labor costs incurred on goods still unsold, P175,000
● Costs of goods identified with units completed by Garnet Company but not yet sold, P335,000
● Unexpired insurance on inventory, P85,000 insurance when still delivering goods are capitalized as inventory, after
delivered, no na.
● Storage costs of goods completed and not yet sold P75,000 unless needed in production
● Advertising catalogs and shipping cartons, P50,000 2,020,000

2. Ginger Company based on a physical count made reported an inventory balance of P2,500,000.
Further inspection of the records revealed the following items:
● Goods sent out on consignment to Pumpkins Company, P700,000. Freight cost on goods sent out
to Pumpkins Company on consignment totaled to P80,000. Pumpkins Company was instructed to
sell the goods at a markup of 20%. At December 31, 2022, 70% of the goods remained unsold.
● Goods held on consignment from Blink Company included at P120,000. Ginger Company was
instructed to sell the goods at a 25% markup.
● Goods sold on an installment basis to Ginger Company, P250,000. Title to the goods is retained
by Chili Company until full payment is received
● Cost of goods sold to Pepper Company, for which Ginger Company has signed an agreement to
repurchase it at a set price that covers all costs related to the inventory, P330,000
● Cost of goods included in the count identified as damaged/unsalable, P110,000
● Cost of goods sold where large returns are predictable, P80,000
The inventory balance to be reported at December 31, 2022 is 3,146,000

3. Jade Company reported an ending inventory of P2,340,000 based on a physical count on December
28, 2022. The following information were provided in determining the amount to be reported
● Cost of goods sold FOB destination, shipped on December 29, 2022, P200,000. The goods were
expected to be received by the buyer on January 2, 2023
● Cost of goods sold FOB destination, shipped on December 27, 2022, P365,000. The goods are
expected to be received by the buyer on January 2, 2023
● Cost of goods sold FOB destination, shipped on December 30, 2022 and received by the buyer
on December 31, 2022 – P115,000.
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● Cost of goods sold FOB shipping point, shipment date December 26, 2022, expected to be
received by the buyer on January 3, 2023 – P95,000.
● Cost of goods sold FOB shipping point, shipment date December 30, 2022, expected to be
received by the buyer January 4, 2023 – P75,000.
● Cost of goods purchased FOB shipping point that are in transit at December 31, 2022, P60,000
● Cost of goods purchased FOB destination that are in transit at December 31, 2022, P90,000
The inventory balance to be reported at December 31, 2022 is 2,575,000

4. In your review of AJP Company’s books on December 31, 2022, merchandise with a cost of
P1,500,000 was reported. It was discovered that the following items were excluded in the said
computation.
● Merchandise costing P200,000 were sent out on consignment to Alive Company. 60% of the
goods remain unsold at balance sheet date. Freight cost to deliver the goods to Alive Company
P50,000. The goods were marked to sell at P345,000
● Merchandise costing P175,000 shipped by AJP Company FOB destination to a customer on
December 30, 2022. The customer was scheduled to receive the merchandise on January 6, 2023.
● Merchandise costing P260,000, which was shipped by AJP Company FOB shipping point to a
customer on December 29, 2022. The customer was scheduled to receive the merchandise on
January 8, 2023
● Merchandise of P200,000, which is held by AJP Company on consignment.
● Merchandise costing P250,000 shipped by Daughter Company FOB destination on December 31,
2022 and received by AJP Company on January 5, 2023
● Merchandise costing P150,000 shipped by Jeremy Company. FOB selling point on December 31,
2022, and received by AJP Company on January 11, 2023
Based on the above information, calculate the amount that should appear on AJP Company’s
balance sheet at December 31, 2022 for inventory 1,975,000

5. Based on the following schedule prepared by Sunstone Company’s accountant, determine the
amount of adjustment to the inventory account
Merchandise in store (at 20% profit on selling price ) 450,000
Merchandise out on consignment (at 25% above cost) 237,500
Goods held on consignment at sales price (including
commission of 20% of sales price) 32,000
Goods purchased in transit (FOB shipping point; freight of
P2,000 not included) 48,000
Goods out on approval: sales price, P52,000; cost, P45,000 52,000
(174,500)

6. Neon Company acquired a shipload of different components, 32,000 units of Gold; 31,250 units of
Silver; 40,000 units of Ruby and 46,875 units of Emerald needed to manufacture its product for a
total consideration of P3,500,000. Freight and insurance was P650,000. The relative market values of
the said components are presented below:
Component MV (per unit) Component MV (per unit)
Gold P 62.50 Ruby 25.00
Silver 40.00 Emerald 16.00

The inventory cost for each component would be

gold - 1,660,000
silver - 1,037,500
ruby - 830,000
emerald - 622,500
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7. The following information pertains to Topaz Company’s manufacturing operations:

Inventories Beginning End
Direct materials P 350,000 P 290,000
Work in process 160,000 215,000
Finished goods 325,000 370,000
Additional information for the period
Direct materials purchased P 285,000
Direct labor payroll 104,640
Direct labor rate per hour P 12
Factory overhead rate per direct labor hour 16
Compute the following:
a. Prime cost 449,640 b. Conversion cost 244,160
c. Cost of goods manufactured d. Cost of goods sold 489,160
534,160
8. Presented below is information for 2022 in relation to Diamond Company’s inventory
Beginning 210 @ P50
Purchases Sales
May 245 @ P70 March 150 @ P70
September 330 @ P90 August 265 @ P100
December 315 @ P120
All purchases and sales are on account.
a) Assuming that Diamond Company is using the periodic inventory system and FIFO cost-formula;
prepare all the necessary journal entries, including the year-end closing entry

b) Assuming that Diamond Company is using the perpetual system and FIFO cost formula; prepare
all the necessary journal entries, including the year-end closing entry
Periodic Inventory System Perpetual Inventory System

9. At the start of the year, Duncan Company had merchandise costing P185,000 in inventory. During
January of the current year, the company purchased merchandise costing P65,000 and sold
merchandise it purchased at a total cost of P75,000.
Assuming that Duncan Company uses the periodic inventory system
a) The balance on the inventory account at January 31 185,000
b) The amount of goods transferred from “Inventory” to “Cost of Sales” during January 0
Assuming that Duncan Company uses the perpetual inventory system
a) The balance on the inventory account at January 31 175,000
b) The amount of goods transferred from “Inventory” to “Cost of Sales” during January 75,000

10. Records of the Breathing Company shows the following relative to “AIR”
Beginning 1 3,500 units @ P 200

Purchase 6 1,400 units @ P 300 Sale 4 2,900 units @ P 900

15 3,000 units @ P 450 20 3,500 units @ P 900
29 500 units @ P 725 30 750 units @ P 900

Calculate the inventory balance:

a. FIFO periodic 700,000
b. FIFO perpetual 700,000
c. Average periodic – weighted average (WAVE) 421,503
d. Average perpetual - moving average (MAVE) 580,937.5
e. LIFO periodic 250,000
f. LIFO perpetual 315,000
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11. Gundam Company’s first 3 months show purchases of “Foo” as follows

September October November
Number of units 12,000 16,000 10,200
Cost P 63,480 P 85,920 P 55,998
Inventory balance at the end of November using LIFO is valued at P91,404.
a. Ending inventory under the FIFO method 93,588
b. Ending inventory under the Average method 92,483

12. On November 17, 2022, Lany Company entered into a commitment to purchase 10,000 barrels of
aviation fuel for P500,000 to be delivered on March 23, 2023. Lany Company entered into this
purchase commitment to protect itself against the volatility in the aviation fuel market.
By December 31, 2022 the purchase price of aviation fuel had fallen to P40 per barrel.
On March 23, 2023, when Lany Company took delivery of the 10,000 barrels, the price of aviation
fuel had risen to P60 per barrel.
a. The loss on purchase commitment reported in the 2022 comprehensive income statement is 100,000
b. The gain (recovery) that may be included in the 2023 comprehensive income statement is 100,000

13. Savage Company uses the lower of cost or net realizable value for each of the products in its ending
inventory. Specific data for each product are as follows:
Product Name A B C D
Historical cost P 850 P 900 P 600 P 1,000
Replacement cost 800 800 500 910
Estimated cost of disposal 300 400 300 100
Estimated selling price 1,200 1,000 1,000 900
Normal profit margin 200 100 100 100
Compute the correct inventory value for each product 850; 600; 600; 800

14. Snow Company uses the lower of cost or net realizable value for each of the products in its ending
inventory. Specific data for each product are as follows:
Finished Goods Product D Product J Product B
Cost P 545,000 P 425,000 P 445,500
Selling price 623,700 493.800 564,975
Estimated cost to sell (based on selling price) 10% 15% 20%

Work in Process Product D Product J Product B

Cost P 280,000 P 330.000 P 305,000
Selling price 364,000 425,600 406,500
Estimated cost to complete 25,000 35,000 15,000

Raw Materials Product J Product B

A E C F
Cost 30,000 41,000 25,000 33,000
Current purchase price 32,000 38,000 23,000 37,000

a. The amount under finished goods to be included in the 2022 balance sheet under inventory is 1,410,230
b. The amount under work in process to be included in the 2022 balance sheet under inventory is 911,760
c. The amount under raw materials to be included in the 2022 balance sheet under inventory is 126,000

/mft