FINANCIAL ACCOUNTING AY 2023-2024 1ST SEM

ACTIVTY 8

Name: Mayette P. Chiong Date of Activity:

Year and Section: 3B

CHAPTER 4
INVENTORIES

I. LONG PROBLEMS
Instructions: Analyze the following given problems thru incorporating the accounting standards or financial reporting
standards in recognizing and reporting items affecting book and bank balances. Show your solutions in a separate sheet of
paper and it must be in good form.

CASE 1:
Hero Company reported inventory on December 31, 2020 at P6,000,000 based on a physical count of goods priced at cost and
before any necessary year-end adjustments relating to the following:

 Included in the physical count were goods billed to a customer FOB Shipping Point on December 30, 2020. These goods
had a cost of P125,000 and were picked up by the carrier on January 7, 2021.
 Goods shipped FOB shipping point on December 28, 2020, from a vendor to Hero were received on January 4, 2021. The
invoice cost was P300,000.

What amount should be reported as inventory on December 31, 2020?

a. 5,875,000 c. 6,175,000
b. 6,000,000 d. 6,300,000

CASE 2:
Fair Company reported inventory on hand on December 31, 2020 valued at a cost of P950,000. The following items were not
included in this inventory amount:

Item 1: Purchased goods in transit, shipped FOB destination, invoice price P30,000 which includes freight charge of
P1,500.

Item 2: Goods held on consignment by Fair Company at a sales price of P28,000, including sales commission of 20%
of the sales price.

Item 3: Good sold to Grace Company, under terms FOB destination, invoiced for P18,500 which includes P1,000
freight charge to deliver the goods. Goods are in transit. The entity’s selling price is 140% of cost.

Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P2,500.

Item 5: Goods out on consignment to Manila Company, sales price P35,000, shipping cost of P2,000.

What is the adjusted cost of the inventory on December 31, 2020?

a. 1,042,000 c. 1,040,000
b. 1043,000 d. 1,073,500

CASE 3:
Baritone Company counted and reported the ending inventory on December 31, 2020 at P2,000,000. None of the following items
were included when the total amount of the ending inventory was computed:
 P150, 000 in goods located in the entity’s warehouse that are on consignment from another entity.
 P200, 000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31, 2020.
The goods were received by the customer on January 2, 2021. Terms were FOB destination.
 P300, 000 in goods that were purchased by the entity and shipped on December 30 and were in transit on December 31,
2020.
The goods were received by the entity on January 2, 2021. Terms were FOB shipping point.

 P400, 000 in goods that were sold by the entity and shipped on December 30 and were in transit on December 31,
2020. The goods were received by the customer on January 2, 2021. Terms were FOB shipping point.

What is the correct amount of inventory on December 31, 2020?

a. 2,500,000 c. 2,900,000
b. 2,350,000 d. 2,750,000

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FINANCIAL ACCOUNTING AY 2023-2024 1ST SEM
ACTIVTY 8

CASE 4:
Joy Company conducted a physical count on December 31, 2020 which revealed inventory with a cost of P4, 410,000. The audit
identified that the following items were excluded from this amount:
 Merchandise of P610, 000 is held by Joy on consignment.
 Merchandise costing P380, 000 was shipped by Joy FOB destination to a customer on December 31, 2020. The customer
was expected to receive the goods on January 5, 2021.
 Merchandise costing P460, 000 was shipped by Joy FOB shipping point to a customer on December 29, 2020. The
customer was expected to receive the goods on January 5, 2021.
 Merchandise costing P830, 000 shipped by a vendor FOB destination on December 31, 2020 was received by Joy on
January 5, 2021.
 Merchandise costing P510, 000 purchased FOB shipping point was shipped by the supplier on December 31, 2020 and
received by Joy on January 5, 2021.

What is the correct amount of inventory on December 31, 2020?

a. 5,300,000 c. 3,800,000
b. 4,690,000 d. 4,920,000

CASE 5:
Sterling Company reported the 2020 year-end inventory at P7,600,000 before the following adjustments:

 Goods valued at P1,000,000 are on consignment with a customer. These goods are not included in the year-end
inventory.
 Goods costing P250, 000 were received from a vendor on January 5, 2021. The related invoice was received and
recorded on January 12, 2021. The goods were shipped on December 31, 2020, terms FOB shipping point.
 Goods costing P850, 000 were shipped on December 31, 2020, and were delivered to the customer on January 2, 2021.
The terms of the invoice were FOB shipping point. The goods were included in ending inventory for 2020 even though
the sale was recorded in 2020.
 A P350, 000 shipment of goods to a customer on December 31, 2020, FOB destination, was not included in the year-end
inventory. The goods cost P260, 000 and were delivered to the customer on January 8, 2021. The sale was properly
recorded in 2021.
 An invoice for goods costing P350, 000 was received and recorded as a purchase on December 31, 2020. The related
goods, shipped FOB destination, were received on January 2, 2021, and thus were not included in the physical inventory.
 Goods valued at P650, 000 are on consignment from a vendor. These goods are not included in the year-end inventory.
 A P1,050,000 shipment of goods to a customer on December 30, 2020, terms FOB destination, was recorded as a sale in
2020. The goods, costing P840, 000 and delivered to the customer on January 6, 2021, were not included in 2020 ending
inventory.

What is the correct inventory on December 31, 2020?

a. 9,100,000 c. 9,950,000
b. 8,100,000 d. 9,450,000

CASE 6:
Reverend Company conducted a physical count on December 31, 2020 which revealed merchandise with a total cost of
P5,000,000. However, further investigation revealed that the following items were excluded from the count.

 Goods sold to a customer, which are being held for the customer to call at the customer’s convenience with a cost of
P200, 000.

 A packaging case containing a product costing P500, 000 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 investigation revealed
that the customer’s order was dated December 28, 2020, but that the case was shipped and the customer billed on
January 4, 2021.

 A special machine costing P250, 000, fabricated to order for a customer, was finished and specifically segregated at the
back part of the shipping room on December 31, 2020. The customer was billed on that date and the machine was
excluded from inventory although it was shipped on January 2, 2021.

What is the correct amount of inventory that should be reported on December 31, 2020?

a. 5,950,000 c. 5,500,000
b. 5,750,000 d. 5,700,000

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 FINANCIAL ACCOUNTING AY 2023-2024 1ST SEM
ACTIVTY 8

SOLUTIONS:

CASE 1:

PHYSICAL AACOUNT 6,000,000

GOODS SHIPPED FOB SB TO HERO 300,000
TOTAL 6,300,000

CASE 2:

Inventory per books 950,000

Item 3 (18,500-1,000 / 140%) 12,500
Item 4 (50,000 + 2,500) 52,500
Item 5 (35,000 / 140% = 25,000 + 2,000) 27,000
Adjusted inventory 1,042,000

CASE 3:

Reported inventory 2,000,000

Goods sold in transit, FOB destination 200,000
Goods purchased in transit, FOB shipping point 300,000
Correct amount of inventory 2,500,000

CASE 4:

Physical count 4,410,000

Goods sold in transit, FOB DP 380,000
Goods purchased in transit, FOB SP 510,000
Adjusted inventory 5,300,000

CASE 5:

Inventory before adjustment 7, 600, 000

Goods out on consignment 1, 000, 000
Goods purchased, FOB shipping point 250, 000
Goods sold, FOB shipping point (850, 000)
Goods sold, FOB destination 260, 000
Goods sold, FOB destination 840, 000
orrect Inventory, 2020 9, 100, 000

CASE 6:

Physical count on December 31, 2020 5,000,000

Goods sold to a customer 200, 000
Product costing 500, 000
Special machine costing 250, 000
Correct amount of inventory 5,950,000

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INVENTORIES Page 3