Problem 1

O Company asks you to review its December 31, 2020, inventory and prepare the necessary adjustments to the
books. The following information is given to you:
a. O uses the periodic method of recording inventory. A physical count reveals 2,348,900 inventories on
hand at December 31, 2020.
b. Not included in the physical count of inventory is 134,200 of merchandise was shipped FOB shipping
point on December 29 and arrived in January. The invoice arrived and was recorded at December 31.
c. Included in inventory is merchandise sold to O on December 30, FOB destination. This merchandise
was shipped after it was counted. The invoice was prepared and recorded as a sale on account for
128,000 on December 31. The merchandise cost 73,500 and O received it on January 3.
d. Included in inventory was merchandise received from O on December 31 with an invoice price of
156,300. The merchandise was shipped FOB destination. The invoice, which has not yet arrived, has not
been recorded.
e. Not included in inventory is 85,400 of merchandise purchased from O. The merchandise was received
on December 31 after the inventory had been counted. The invoice was received and recorded on
December 30.
f. Included in inventory was 104,380 of inventory held by O on consignment from O industries.
g. Included in inventory is merchandise sold to K FOB shipping point. This merchandise was shipped
after it was counted. The invoice was prepared and recorded as a sale for 189,000 on December 31. The
cost of this merchandise was 105,200 and K received the merchandise on January 5.
h. Excluded from inventory was carton labeled please accept for credit. This carton contains merchandise
costing 15,000 which had been sold to a customer for 25,000. No entry had been made to the books to
reflect the return, but none of the returned merchandise seemed damaged.

Prepare the adjusting entry and compute the amount of adjusted balance of inventory.

Problem 2

A physical inventory count at December 31, 2020 revealed that V Company had inventory on hand at that
date with a cost of 441,800. The annual audit identified that the following items were excluded from this
amount:
 Merchandise of 61,000 is held by V on consignment. The consignor is G Company.
 Merchandise costing 38,000 was shipped by V FOB destination to a customer on December 31,
2020.
 Merchandise costing 46,000 was shipped by V FOB shipping point to a customer on December 29,
2020. The customer was scheduled to receive the goods on January 6, 2021.
 Merchandise costing 83,000 shipped by a vendor FOB destination on December 31, 2020 was
received by V on January 4, 2021.
 Merchandise costing 51,000 purchased FOB shipping point was shipped by the supplier on
December 31, 2020 and received by V on January 5, 2021.

Requirements:
a. Compute the amount to be presented in the statement of financial position as of December 31, 2020 of V
as inventory.
b. Prepare the journal entries to adjust the inventory account assuming that the books are not yet closed.

Problem 3

GM Company, a manufacturer of small tools, provided the following information from its accounting records
for the year ended December 31, 2020:
Inventory at December 31, 2020 (based on physical count of goods in the company’s plant at cost 12/31/20),
2,400,000
Accounts payable at December 31, 2020, 800,000
Net sales (sales less sales returns), 10,150,000
Additional information:
a. Included in the physical count were tools billed to a customer FOB shipping point on December 31,
2020. These tools had a cost of 44,000 and were billed at 60,000. The shipment was on the company’s
loading dock waiting to be picked up by the common carrier.
b. Goods were in transit from a vendor to the company on December 31, 2020. The invoice was 65,000
and the goods were shipped FOB shipping point on December 29, 2020.
c. Work in progress inventory costing 50,000 was sent to an outside processor for plating on December 30,
2020.
d. Tools returned by customers and held pending inspection in the returned goods area on December 31,
2020 were not included in the physical count. On January 8, 2021, the tools costing 32,000 were
inspected and returned to inventory. Credit memos totaling 45,000 were issued to the customers on the
same date.
 e. Tools shipped to a customer FOB destination on December 26, 2020, were in transit at December 31,
2020 and had a cost of 61,000. Upon inspection of receipt by the customer on January 2, 2021, the
company issued sales invoice for 85,000.
f. Goods, with an invoice cost of 27,000 received from a vendor at 5:00 PM on December 31, 2020, were
received on receiving report dated January 2, 2021. The goods were not included in the physical count,
but the invoice was included in accounts payable at December 31, 2020.
g. Goods received from a vendor on December 26, 2020 were included in the physical count. However, the
related 56,000 vendor invoice was not included in accounts payable at December 31, 2020, because the
accounts payable copy of the receiving report was lost.
h. On January 2, 2021, a monthly freight bill in the amount of 8,000 was received. The bill specifically
related to the merchandise purchased in December 2020, one-half of which was still in the inventory at
December 31, 2020. The freight charges were not included in either the inventory or in the accounts
payable at December 31, 2020.

Requirements:
a. Compute for the balance of inventory, accounts payable and net sales to be reported in the financial
statements.
b. Prepare the necessary adjusting entries.