PROBLEM 1

In annual audit on December 31, 013, the following transactions of Novelty

Company are discovered.
1. Merchandise was received on January 8, 2014, and the related
purchase invoice recorded on January 5, 2014. The invoice showed the
shipment was made on December 29, 2013, FOB destination.
2. Merchandise was received on December 28, 2013, and the invoice was
not recorded. It was located in the hands of the purchasing agent and
was marked on consignment.
3. A packing case containing merchandise 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. An
investigation revealed that the customers order was dated December
18, 2013, but the case was shipped and the customer billed on January
10, 2014.
4. Merchandise received on January 6, 2014 was recorded as a purchase
on January 7, 2014. The invoice showed shipment was made FOB
suppliers warehouse on December 31, 2013. Since it was not on hand
on December 31, 2013, it was not included in inventory.
5. A special article, fabricated to order for a customer, was finished and in
the shipping room on December 31, 2013. The customer was billed on
that date and the article was excluded from inventory although it
wasshipped on January 4, 2014.
Required:
State whether the merchandise should be included in the inventory on
December 31, 2013 and state the reason for each item.
Answer:
1. EXCLUDE The term of the shipment is FOB destination.
2. EXCLUDE The goods are held only for consignment.
3. INCLUDE There is no perfected sale yet as of December 31, 2008.
4. INCLUDE The term FOB suppliers warehouse is synonymous with FOB
shipping point.
5. EXCLUDE There is already a constructive delivery since the article was
specificallymade according to the customers specifications and the article is
already completed on December 31, 2008.
PROBLEM 2

Summer Company is a wholesaler of car seatcovers. At the beginning of

the current year, the entitys inventory consisted of 90 car seatcovers
priced at P1,000 each. During the current year, the following events
occurred:
1.
2.
3.
4.
5.

Purchased 800 car seatcovers on account at P1,000 each.

Returned 50 defective car seatcovers to supplier and received credit.
Paid of the car seatcovers purchased.
Sold 790 car seatcovers at P2,000 each.
Received 2 0car seat covers returned by a customer and gave redit.
The goods were in excellent condition.
6. Received cash for 680 of the car seat covers sold.
7. Physical count at year-end revealed 60 units on hand.
Required:
a. Prepare journal entries, including adjustments to record the above
transactions assuming the company uses periodic system and
perpetual system.
b. Determine the cost of sales under each inventory system.
Requirement a
Periodic System

Perpetual System

1. Purchases
Accounts payable
800,000

800,000

2. Accounts payable
Purchase returns
50,000

50,000

3. Accounts payable
Cash
4. Accounts receivable
Sales
1,580,000
5. Sales return
Accounts receivable
790,000

800,000

50,000
600,000

1. Merchandise inventory
800,000
Accounts payable
2. Accounts payable
50,000
Merchandise inventory

600,000

3. Accounts payable
Cash

1,580,000

4. Accounts receivable
Sales

1,580,000

40,000
40,000

600,000
600,000
1,580,000

Cost of sales
790,000
Merchandise inventory

6. Cash
1,360,000
5. Sales return
40,000
Accounts receivable
1,360,000
Accounts receivable
40,000
7. Inventory-Dec. 31
Income summary
20,000
(60 x 1,000)

60,000
60,000

Merchandise inventory
Cost of sales

20,000

6. Cash

1,360,000
Accounts receivable

7. Inventory shortage
10,000
Merchandise inventory

Shortage

Merchandise inventory per book

Physical count
60,000
10,000

1,360,000
10,000
70,000

Requirement b
Periodic System

Perpetual System

Inventory January
90,000
Cost of sales recorded
Purchases
800,000
(790,000 20,000)
Purchase returns
( 50,000) 750,000
Inventory shortage
Goods available for sale
840,000
Adjusted cost of sales
780,000
Less: Inventory December 31
60,000
Cost of sales
780,000

770,000
10,000

PROBLEM 3
Daydream Company began operations on January 1 with 10,000 units of
merchandise with unit cost of P80. Purchases for the year follow:
Lot No.

Units

Unit Cost

1
200
2
8000
3
6000
4
9500
5
14500
The physical inventory reveals 15,000 units on hand

100
110
120
100
90
on December 31.

Required:
Compute inventory cost on December 31 and cost of goods sold following
each method listed below:
1. FIFO-periodic
2. Weighted average- periodic
3. Specific Identification (assuming the inventory comes form Lot 3 6,000
units and Lot 4, 9,000 units)

Units
Total cost
1. FIFO - periodic
Lot No. 4
50,000
5
1,305,000

Unit cost
500

100

14,500

90

15,000
2. Beginning inventory
800,000
Purchases: Lot No. 1
200,000
880,000
720,000
950,000

1,355,000
10,000

80

2,000

100

8,000

110

6,000

120

9,500

100

14,500

90

5
1,305,000
Goods available for sale

50,000

Weighted average (4,855,000/50,000)

15,000

4,855,000
97.10 1,456,500

3. Specific identification
Lot 3
4

6,000
9,000
15,000

FIFO
Weighted average
Specific identification

Goods available
4,855,000
4,855,000
4,855,000

120
100

Inventory-Dec. 31
1,355,000
1,456,500
1,620,000

720,000
900,000
1,620,000
Cost of sales
3,500,000
3,398,500
3,235,000

PROBLEM 4
The following information pertains to an inventory item of Emcee
Company for the month of December of the current year.
Units
1-Dec
7
12
17
22

Beginnin
g
Purchase
Sale
Purchase
Purchase

10000
30000
20000
60000
20000

Unit Cost

Unit selling price

52
50
90
45
43

28 Sale

70000

90

Required:
Assuming the entity uses the periodic system, compute the December 31
inventory and cost of goods sold under:
1. FIFO
2. Weighted average

FIFO
December 17
450,000
22

Average method
December 1
520,000
7
17
22
Available for sale
Inventory (5,580,000/120,000)

10,000
20,000
30,000

45
43

860,000
1,310,000

10,000

52

30,000
60,000

50
45
860,000
5,580,000

20,000
120,000
30,000

43

46.50 1,395,000
FIFO
5,580,000

Goods available for sale

5,580,000
Less: Inventory December 31
Cost of goods sold

1,500,000
2,700,000

1,310,000
4,270,000

Average

1,395,000
4,185,000

PROBLEM 5
The records of Extreme Company showed the following:
Units

Unit Cost

Total Cost

Beginnin
1-Jan g
31 Sale

10000
5000

40 400,000.00

1-Apr Purchase
31-Jul Sale
1-Oct Purchase

15000
18000
25000

50 750,000.00
60

1,500,000.

00
1-Dec Sale

12000

Required:
Compute the cost of the ending inventory and cost of sales using:
1. FIFO- periodic
2. Weighted average
3. Moving average

Units
Total cost

Unit cost

FIFO
October 1

15,000

60

900,000

Weighted average periodic

January 1
April
1
October 1
Goods available for sale
Less: Sales
Ending inventory

10,000
15,000
25,000
50,000
35,000
15,000

40
50
60

400,000
750,000
1,500,000
2,650,000

Weighted average (2,650,000/50,000)

15,000

53

Units

795,000

Unit cost

Total

cost
Moving average perpetual
January 1
31
Balance
200,000
April 1
Total
950,000
July 31
Balance
95,000
October 1
Total
1,595,000
December 31
Balance
average

10,000
( 5,000)
5,000

40
40

15,000 50
20,000
(18,000)
2,000
25,000 60__
27,000

400,000
( 200,000)
40
750,000
47.50
47.50 ( 855,000)
47.50

1,500,000
59.07

(12,000)
59.07 ( 708,840)
15,000 59.07
886,160
FIFO

Weighted

Inventory January 1
Purchases
Goods available for sale
Less: Inventory December 31
Cost of sales

400,000
2,250,000
2,650,000
900,000
1,750,000

Cost of sales Weighted average perpetual

January
31 Sale
July
31 Sale
December 31 Sale
Total cost of sales

400,000
2,250,000
2,650,000
795,000
1,855,000
200,000
855,000
708,840
1,763,840

PROBLEM 6
The inventory records of Premiere Company showed the following data:
Units
Materials
R
S
T
Goods in
process
X
Y
Finished goods
A
B

Unit
Cost

NRV

1000
2000
3000

110
250
300

100
260
330

4000
5000

500
650

480
620

2000
2000

800
730

790
780

Required:
Determine the valuation of inventory following the measurement at
LCNRV.
Lower of
Units
value
Materials:
R
S

1,000
2,000

cost or NRV
100
250

Inventory
100,000
500,000

3,000

300

900,000

Goods in process:
X
Y

4,000
5,000

480
620

1,920,000
3,100,000

Finished goods:
A
B

2,000
2,000

790
730

1,580,000
1,460,000

Valuation at lower of cost or NRV

9,560,000

PROBLEM 7
The inventory of HH Company at the end of the current year is to be
recorded at the lower of cost or net realizable value. Ending inventory
data per unit are summarized below:
Item
A
B
C
D
E

Units
Cost
Estimated sales price
1000
120
180
1500
110
140
1200
150
170
1800
140
190
1700
130
200

Cost of sell
30
20
30
30
40

Required:
Determine the inventory value applying the lower of cost or net realizable
value.
(Lower of cost or NRV)
Units
Unit cost
value
A
B
C
D
E

1,000
1,500
1,200
1,800
1,700

120
110
150
140
130

NRV
150
120
140
160
160

Inventory
120,000
165,000
168,000
252,000
221,000
926,000

PROBLEM 8
Landmark Company purchased a tract of unimproved land for P26,850,000. The land was
improved and subdivide into residential lots at a cost of P43,500,000. These lots were all of
the same size but owing to differences in location were offered for sale at different prices as
follows:

Number of
lots

Group

Sales price per

lot

20 3,000,000.00

40 2,500,000.00

100 2,000,000.00

Group
1
2
3

5
4
3

Required:
Compute the cost of unsold lots at the end of the year.

Purchase price
Improving and subdividing cost
Total cost

26,850,000
43,500,000
70,350,000

Sales price
Group
1
(20 x 3,000,000)
40,200,000
2
(10 x 2,500,000)
16,750,000
3
(10 x 2,000,000)
13,400,000

Group
1
(40,200,000/20)
10,050,000
2
(16,750,000/10)
6,700,000
3
(13,400,000/10)

Fraction

Cost

60,000,000

60/105

25,000,000

25/105

20,000,000

20/105

105,000,000

Cost per lot

70,350,000

Unsold

Cost

2,010,000

1,675,000

1,340,000

3
4,020,000
20,770,000