INVENTORIES

Problem 3-1

Latina Company bought merchandise on January 2, 2021 from Doroja 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. Latina Company
paid the account within the discount period. How much Latina Company paid to Doroja
Company?
a. P 7,600 b. P 7,448 c. P 7,408 d. P 7,360

Problem 3-2
The FLORES COMPANY’S year-end inventory based on physical count conducted on
December 31, 2021, 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, 2021. These goods had a cost of P28,000 and were billed at P35,000.
The shipment was on FLORES’ loading dock waiting to be picked up by the common
carrier.
2. Goods were in transit from a vendor to FLORES on December 31, 2021. The
invoice cost was P50,000 and the goods were shipped FOB Shipping on Dec. 29,2021.
3. Work in process inventory costing P20,000 was sent to an outside processor for
plating on Dec. 30, 2021.
4. Goods returned by customers and held pending inspection in the returned goods
area on Dec. 31, 2021, were not included in the physical count. On January 8, 2022,
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, 2021, were in transit at
Dec. 31, 2021 and had a cost of P25,000. Upon notification of receipt by the customer
on January 2, 2022, the company issued a sales invoice for P42,000.
6. Goods received from a vendor on Dec. 26, 2021, were included in the physical
count. However the related P60,000 vendor invoice was not included in Accounts
Payable as December 31, 2021, because the Accounts Payable copy of the receiving
report was lost.

7. On January 3, 2022, a monthly freight bill in the amount of P4,000 was received.
This was specifically related to merchandise purchased in Dec. 31, 2021. The freight
charges were not included in either the inventory or in accounts payable at Dec. 31,
2021.
Questions:
1. Sales at year-end is overstated by:

a. P 75,000 b. P 40,000 c. P 35,000 d. P 33,000

2. Purchases at year-end is understated by:
a. P 110,000 b. P 84,000 c. P 64,000 d. P 60,000
3. Cost of sales at year-end is overstated by:
a. P 46,000 b. P 21,000 c. P 11,000 d. P 7,000

4. 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

Problem 3-3
On January 1, 2022, Menor Corporation engaged an independent CPA to perform an
audit for the year ended December 31, 2021. The company uses a periodic inventory
system. The CPA did not observe the inventory count on December 31, 2021, as a
result, a special examination was made of the inventory records.
The financial statements prepared by the company (uncorrected) showed the following:
ending inventory, P72,000; accounts receivable, P60,000; accounts payable, P30,000;
sales, P400,000; net purchases, P160,000, and pretax income P51,000.
The following data were found during the audit:
1. Merchandise received on January 2, 2022, costing P800 was recorded on
December 31, 2021. An invoice on hand showed the shipment was made fob supplier’s
warehouse on December 31, 2021. Because the merchandise was not on hand at
December 31, 2021, it was not included in the inventory.
2. Merchandise that cost P18,000 was excluded from the inventory, and the related
sale for P23,000 was recorded. The goods had been segregated in the warehouse for
shipment; there was no contract for sale but a “tentative order by phone”.
3. Merchandise that cost P10,000 was out on consignment for Calizar Distributing
Company and was excluded from the ending inventory. The merchandise was recorded
as a sale P25,000 when shipped to Calizar on December 29, 2021.
4. A sealed packing case containing a product costing P900 was in Menor’s shipping
room when the physical inventory was taken. It was included in the inventory because
it was marked “Hold for customer’s shipping instructions.” Investigation revealed that
the customer signed a purchase contract dated December 18, 2021, but that case was
shipped and the customer billed on January 10, 2022. A sale for P1,500 was recorded
on December 31, 2021.
5. A special item, fabricated to order for a customer, was finished and in the
shipping room on December 31, 2021. The customer has inspected it and was satisfied.
The customer was billed in full on that sale in the amount of P5,000. The item was
included in inventory at cost, P1,000 because it was shipped on January 4, 2022.
6. Merchandise costing P15,600 was received on December 28, 2021. The goods
were excluded from inventory, and a purchase was not recorded. The auditor located
the related papers in the hands of the purchasing; they indicated, “On consignment
from Alba Company”.
7. Merchandise costing P2,000 was received on January 8, 2022, and the related
purchase invoice recorded January 9. The invoice showed the shipment was made on
December 29, 2021, fob destination. The merchandise was excluded from the inventory.
8. Merchandise that cost P6,000 was excluded from the ending inventory and not
recorded as a sale for P7,500 on December 31, 2021. The goods had been specifically
segregated. According to the terms of the contract of sale, ownership will not pass until
actual delivery.
9. Merchandise that cost P15,000 was included in the ending inventory. The related
purchase has not been recorded. The goods had been shipped by the vendor fob
destination, and the invoice was received on December 30, 2021. The goods was received
on January 5, 2022.
10. Merchandise in transit that cost P7,000 was excluded from inventory because it
was not on hand. The shipment from the vendor was fob shipping point. The purchase
was recorded on December 29, 2021, when the invoice was received.
11. Merchandise in transit that cost P13,000 was excluded from inventory because
it had not arrived. Although the invoice had arrived, the related purchase was not
recorded by December 31, 2021. The merchandise shipped fob shipping point by the
vendor.
12. Merchandise that cost P8,000 was included in the ending inventory because it
was on hand. The merchandise had been rejected because of incorrect specifications
and was being held for return to the vendor. The merchandise was recorded as a
purchase on December 26, 2021.
Question:

Based on your analysis and the information above, answer the following:
1. The adjusted balance of inventory at year-end is:
a. P 101,900 b. P 102,000 c. P 102,800 d. P 120,400
2. The adjusted balance of accounts receivable at year-end is:
a. P 10,500 b. P 12,000 c. P 35,000 d. P 37,000

3. The adjusted balance of accounts payable at year-end is:

a. P 43,000 b. P 35,000 c. P 30,000 d. P 22,000
4. The adjusted balance of Sales at year-end is:
a. P 377,000 b. P 352,000 c. P 350,500 d. P 347,000

5. The adjusted balance of Net Purchases at year-end is:

a. P 152,000 b. P 165,000 c. P 173,000 d. P 181,000
6. The adjusted balance of Pre-tax income at year-end is:
a. P 27,300 b. P 29,000 c. P 29,800 d. P 35,800
Problem 3-4

Dimaala Company’s December 31, 2020 and December 31, 2021 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.
Question:
Based on your analysis and the information above, answer the following:
1. The adjusted balance of the Jan. 1, 2021 inventory is:

a. P 35,000 b. P 35,840 c. P 39,100 d. P 59,100

2. How much is the adjusted balance of the Purchases account at December 31,
2021 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
3. The corrected December 31, 2021 inventory is
a. P 52,100 b. P 50,600 c. P 32,100 d. P 28,500

Problem 3-5
During the 2021 audit of SORIANO Manufacturing Company’s year-end inventory, you
found the following items.

• A packing case containing product costing P8,160 was standing in the shipping
room when the physical inventory was taken. It was not included in the inventory
because it was marked “Hold for shipping instructions.” The customer’s order was dated
December 18, but the case was shipped and the customer billed on January 10, 2022.
• Merchandise costing P6,250 was received on December 28, 2021, and the invoice
was recorded. The invoice was marked “On Consignment.”

• Merchandise received on January 6, 2022 costing P7,200 was entered in the

purchase register on January 7. The invoice showed shipment made FOB shipping point
on December 31, 2021.
• A special machine, fabricated to order for a particular customer, was finished and
in the shipping room on December 30. The customer was billed on that date and the
machine was excluded from inventory although it was shipped January 2, 2022. The
machine costs P25,000 and was sold for P45,000.

• Merchandise costing P23,500 was received on January 3, 2022, and the related
purchase invoice was recorded January 5. The invoice showed the shipment was made
on December 29, 2021, FOB destination.
• Merchandise costing P11,000 was sold on an installment basis on December 15
at P25,000. The customer took possession of the goods on that date. The merchandise
was included in inventory because SORIANO still holds legal title. Historical experience
suggests that full payment on the installment sales is received approximately 99% of
the time.

• Goods costing P15,000 were billed for P20,000 and delivered on December 20.
The goods were included in inventory because the sale was accompanied by a
repurchase agreement requiring SORIANO to buy back the inventory in February 2022.
Selected account balances before considering the effects of the above items are as
follows:
Accounts receivable P 185,000
Inventory 114,500
Accounts payable 67,200
Sales 942,400
Gross profit 287,990
Net income 84,680
Questions:
1. What is the adjusted accounts receivable balance at the end of the year?

a. P 166,000 b. P 165,000 c. P 150,000 d. P 125,000

2. What is the adjusted inventory balance at the end of 2021?
a. P 118,860 b. P 116,700 c. P 112,610 d. P 104,450
3. What is the adjusted balance of accounts payable at the end of the year?
a. P 68,150 b. P 68,000 c. P 67,200 d. P 65,000

4. The adjusted total sales in 2021 is

a. P 962,400 b. P 925,600 c. P 925,000 d. P 922,400

5. The adjusted Cost of goods sold in 2021 is

a. P 640,040 b. P 650,200 c. P 651,040 d. P 657,250
Problem 3-6

ECHEVARRIA COMPANY is a manufacturer of small tools. The following information

was obtained from the company’s accounting records for the year ended December 31,
2021:

Inventory at December 31, 2021

(based on physical count in
ECHEVARRIA’s warehouse at cost
on December 31, 2021) 1,870,000
Accounts payable at December 31, 2021 1,415,000
Net sales (sales less sales returns) 9,693,400

Your audit reveals the following information:

1. The physical count included tools billed to a customer FOB shipping point on
December 31, 2021. These tools cost P64,000 billed at P78,500. They were in the
shipping area waiting to be picked up by the customer.

2. Goods shipped FOB shipping point by a vendor were in transit on December 31,
2021.These goods with invoice cost of P93.400 were shipped on December 29,
2021.

3. Work in process inventory costing P27,000 was sent to a job contractor for further
processing.

4. Not included in the physical count were goods returned by customers on

December 31, 2021. These goods costing P49,000 were inspected and returned
to inventory on January 7, 2022. Credit memos for P67,800 were issued to the
customers at that date.
 5. In transit to a customer on December 31, 2021, were tools costing P17,740
shipped FOB destination on December 26, 2021. A sales invoice for P29,400 was
issued on January 3, 2022, when ECHEVARRIA Company was notified by the
customer that the tools had been received.

6. At exactly 5:00 pm on December 31, 2021, goods costing P31,200 were received
from a vendor. These were recorded on a receiving report dated January 2, 2022.
The related invoice was recorded on December 31, 2021, but the goods were not
included in the physical count.

7. Included in the physical count were goods received from a vendor on December
27, 2021. However, the related invoice for P36,000 was not recorded because the
accounting department’s copy of the receiving report was lost.

8. A monthly freight bill for P16,000 was received on January 3, 2022. It specifically
related to merchandise bought in December 2021, one half of which was still in
the inventory at December 31, 2021. The freight was not included in either the
inventory or in accounts payable at December 31, 2021.

Question:

Based on your analysis and the information above, answer the following:

1. The inventory at year-end is:

a. Understated by P170,340 c. Understated by P126,340
b. Understated by P162,340 d. Understated by P82,140

2. The accounts payable at year-end is:

a. Understated by P93,400 c. Understated by P137,400
b. Understated by P106,200 d. Understated by P145,400

3. The amount of sales at year-end is:

a. Overstated by P67,800 c. Overstated by P29,400
b. Overstated by P38,400 d. Correctly stated

4. The adjusted balance of inventory at year-end is:

a. P 1,952,140 b. P 1,996,340 c. P 2,032,340 d. P 2,040,340

5 The adjusted balance of accounts payable at year-end is:

a. P 1,560,400 b. P 1,552,400 c. P 1,521,200 d. P 1,508,400

6. The adjusted balance of sales at year-end is:

a. P 9,722,800 b. P 9,693,400 c. P 9,655,000 d. P 9,625,600

Problem 3-7
On April 15, 2022, a fire damaged the office and warehouse of OLIVIA CORPORATION.
The only accounting record save was the general ledger, from which the trial balance
below was prepared.
 OLIVIA CORPORATION
TRIAL BALANCE
March 31, 2022
Cash 200,000
Accounts receivable 400,000
Inventory, December 31, 2021 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, 2022. 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
2021 2020
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.
Questions:
1. Inventory at April 15, 2022 is:
a. P 0 b. P 35,000 c. P 58,000 d. P 93,000

2. Accounts payable at April 15, 2022 is:

a. P 106,000 b. P 180,000 c. P 276,500 d. P 286,000
3. Sales as of April 15, 2022 is:
a. P 1,470,000 b. P 1,510,000 c. P 1,750,000 d. P 1,790,000
4. Net purchases as of April 15, 2022 is:
a. P 544,500 b. P 593,500 c. P 627,500 d. P 650,500
5. Cost of Sales as of April 15, 2022 is:
a. P 513,000 b. P 547,000 c. P 721,000 d. P 830,500
6. Estimated inventory as of April 15, 2022 is:
a. P 570,000 b. P 575,500 c. P 679,500 d. P 830,500
7. Inventory loss at April 15, 2022 is:
a. P 477,000 b. P 512,000 c. P 535,000 d. P 570,000
8. The Average Gross Profit for two years (2020 and 2021) is:

a. 45% b. 55% c. 42.76% d. 56.23%