Problem Solving:

Problem #1 (Goods includible in the inventory):

Randielyn Company provided the following data:

Items counted in the bodega 4,000,000
Items included in the count specifically
segregated per sale contract 100,000
Items in receiving department, returned
by customer, in good condition 50,000
Items ordered and, in the receiving,
Department, invoice not received 400,000
Items ordered; invoice received
but goods not received.
Freight is paid seller. 300,000
Items shipped today, invoice mailed,
FOB shipping point 250,000
Items shipped today, invoice mailed,
FOB destination 150,000
Items currently being used for window
Display 200,000
Items on counter for sale 800,000
Items in receiving department,
refused by us because of damage 180,000
Items included in count, damaged
and unsalable 50,000
Items in the shipping department 250,000

Compute the correct amount of inventory.

Answer: 5,700,000

Problem #2 (Cost of Inventories)

Ivan Company provided the following information at current year-end:

Finished goods in storeroom, at cost

including overhead of P400,000 2,000,000
Finished goods in transit, including freight
charge of P20,000, FOB shipping point 250,000
Finished goods held by salesmen,
at selling price, cost, P100,000 140.000
Goods in process, at cost of materials
and direct labor 720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective materials returned to suppliers
for replacement 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000
Machine lubricants 60,000

Compute cost of inventory at current year-end.

Answer: 4,170,000

Problem #3 (Net Realizable Value)

Rose Company carried four items in inventory. The following per-unit data relate to
these items at the end of first year of operations:
 Units Cost Sale price Selling Normal
Cost Profit
Category 1:
A 25,000 105 130 15 20
B 20,000 85 90 10 10

Category 2:
C 40,000 50 45 5 5
D 30,000 65 75 15 10

Compute for the measurement of inventory under LCNRV on item-by-item

basis.
Answer: 7,625,000

Problem #4 (Trade and Cash Discount):

Dean Sportswear regularly buys sweaters from April Company and is allowed trade
discounts of 20% and 10% from the list price.

Dean made a purchase during the year and received an invoice with a list price of
P600,000, a freight charge of P15,000 and payment terms of 2/10, n/30.

Compute for the cost of the purchase.

Answer: 447,000

Problem #5 (Goods in Transit)

Jeleene Company conducted a physical count on December 31, 2019 which
revealed inventory with a cost of P4,410,000.

The following items were excluded from the physical count:

Merchandise shipped by Jeleene FOB

destination to a customer on
December 31, 2019 and was received
by the customer on January 5, 2020 380,000

Merchandise shipped by Jeleene FOB

shipping point to a customer on
December 31, 2019 and was received
by the customer on January 5, 2020 460,000

Merchandise shipped by a vendor

FOB destination on December 31, 2019
was received by Jeleene on
January 5, 2020 830,000

Merchandise purchased FOB shipping

point was shipped by the supplier
on December 31, 2019 and received
by Jeleene on January 5, 2020 510,000

Compute for the amount of inventory as of Dec. 31, 2019

Answer: 5,300,000

Problem #6 (Periodic/Perpetual Inventory System)

1. Sold merchandise on account costing P8,000 for P10,000; terms were 2/10,
n/30.
 2. Customer returned merchandise costing P400 that had been sold on account
for P500 (part of the P10,000 sale).
3. Received payment from customer for merchandise sold above [ cash discount
taken: (P10,000 sale – P500 return) x 2% discount = P190].
4. Purchased on account merchandise for resale for P6,000; terms were 2/10,
n/30 (purchases recorded at invoice price).
5. Paid P200 freight on the P6,000 purchase; term was FOB shipping point,
freight collect.
6. Returned merchandise costing P300 (part of the P6,000 purchase).
7. Paid for merchandise purchased, refer to no. 4 [ cash discount taken:
(P6,000 purchase – P300 return) x 2% discount = P114].
8. To transfer the beginning inventory balance to income summary account
P250,000 (part of the closing entries under the periodic inventory system).
9. To record the ending inventory balance P231,500 (part of the closing entries
under the periodic inventory system):
10. To adjust the ending perpetual inventory balance of P231,660 for the
shrinkage during the year.

Answer:
Periodic Perpetual
Accounts Receivable 10,000 Accounts Receivable 10,000
Sales 10,000 Sales 10,000
COGS 8,000
Inventory 8,000
Sales Return 500 Sales Return 500
Accounts Receivable 500 Accounts Receivable 500
Inventory 400
COGS 400
Cash 9,310 Cash 9,310
Sales Discount 190 Sales Discount 190
Accounts Receivable 9,500 Accounts Receivable 9,500
Purchases 6,000 Inventory 6,000
Accounts Payable 6,000 Accounts Payable 6,000
Freight In 200 Inventory 200
Cash 200 Cash 200
Accounts Payable 300 Accounts Payable 300
Purchase Return 300 Inventory 300
Accounts Payable 5,700 Accounts Payable 5,700
Cash 5,586 Cash 5,586
Purchase Disc. 114 Inventory 114
Income Summary 250,000 NO ENTRY
Merch Inventory, beg. 250,000
Merch. Inventory, end NO ENTRY
Income Summary
NO ENTRY Cost of Sales 360
Inventory 360
#if normal shrinkage
Expense/Loss 360
Inventory 360
#if abnormal shrinkage

Problem #7 (FIFO METHOD)

Paula Company provided the following data relating to an inventory item.

Units Unit Cost Total Cost

Jan. 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase return 2,000 150 300,000
Compute for the inventory cost at year-end and cost of goods sold for the year
following each method listed below:
1. FIFO – Periodic
Inventory, beginning 5,000 units
Net Purchases 19,000 units
Sales (6,000) units
Inventory Ending 18,000 units

4,000 units * 250 = 1,000,000

14,000 units * 150 = 2,100,000
Ending Inventory 3,100,000

Inventory, beginning 1,000,000

Net Purchases:
Purchases 3,650,000
Purchase Returns ( 300,000) 3,350,000
Total Goods available for sale 4,350,000
Inventory, ending (3,100,000)
Cost of Goods Sold 1,250,000

2. FIFO – Perpetual
Purchase Sales Balance
Date Units UC Total Units UC Total Units UC Total
1 5000 200 1M
10 5000 250 1.25M 5000 200 1M
5000 250 1.25M
15 5000 200 1M
2000 250 500K 3000 250 750K
16 (1000) 250 (250K) 4000 250 1M
30 16000 150 2.4M 4000 250 1M
16000 150 2.4M
31 (2000) 150 (300K) 4000 250 1M
14000 150 2.1M
Ending Inventory 18000 3.1M

Inventory, beginning 1,000,000

Net Purchases:
Purchases 3,650,000
Purchase Ret. 300,000 3,350,000
Total Goods Avail for Sale 4,350,000
Inventory, Ending 3,100,000
Cost of Goods Sold 1,250,000

Problem #8 (GROSS PROFIT METHOD)

Robert John Quizana Company provided the following information:

2020 2021
Sales 7,500,000 4,500,000
Beginning Inventory 1,260,000
Purchases 6,450,000 3,180,000
Freight In 350,000 220,000
Purchase Discounts 90,000 45,000
Purchase Returns 120,000 40,000
Purchase Allowances 20,000 15,000
Ending Inventory 2,355,000

Compute for the inventory cost on December 31, 2021.

Answer: 2,370,000
Problem #9 (GROSS PROFIT METHOD-FIRE LOSS)

On December 31, 2021, a big fire caused severe damage to the warehouse of Ma-
an Company.

2021 2020
Beginning Inventory 1,000,000
Purchases 8,000,000 5,600,000
Purchase Returns 500,000 100,000
Sales 9,000,000 6,000,000

At the beginning of 2021, the entity changed the policy on the selling prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross
profit rate in 2020.

Undamaged merchandise marked to sell at 500,000 was salvaged. Damaged

merchandise marked to sell at 100,000 had an estimated realizable value of 10,000

Compute for the amount to be reported as inventory fire loss.

Answer: 1,840,000

Problem #10 (Retail Inventory Method)

Alexis Company used the retail inventory method to approximate the ending
inventory.

The following information is available for the current year:

Cost Retail
Beginning inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase return 300,000 500,000
Purchase allowance 150,000
Departmental transfer in 200,000 300,000
Net markup 300,000
Net markdown 1,000,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting losses 600,000
Estimated normal shrinkage 400,000

Compute for the estimated cost of ending inventory using the:

1. Average Cost Approach
2. Conservative Approach
3. FIFO Retail Approach

Cost Retail
Beginning Inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Purchase Return (300,000) (500,000)
Purchase Allowance (150,000)
Freight In 200,000
Departmental Transfer In/Debit 200,000 300,000
Mark-up (Additional) 300,000
Markdown (1,000,000)
Total Goods Available for Sale 9,600,000 15,000,000
 Net Sales
Sales 9,500,000
Employee Discounts 500,000
Normal Losses 1,000,000
Net Sales 11,000,000

Ending Inventory
TGAS @ retail 15,000,000
Net Sales 11,000,000
Ending Inventory @ retail 4,000,000

TGAS @ Cost TGAS @ Retail Cost Ratio

FIFO 8,950,000 13,800,000 64.86%
Average 9,600,000 15,000,000 64%
Conservative 9,600,000 16,000,000 60%

FIFO Average Conservative

Ending Inventory @ Retail 4,000,000 4,000,000 4,000,000
Cost Ratio 64.86% 64% 60%
Ending Inventory @ Cost 2,594,400 2,560,000 2,400,000