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Ac503quizinvty - Lecture notes 9
corporate law (University of Manila)
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QUIZ ON INVENTORIES (CHAPTER 10, 11 and 13)
PROB. 1– CORRECT BALANCE OF INVENTORY
The inventory on hand on December 31, 2012 for Faith Company is valued at a cost of P 950,000. The
following items were not included in this inventory amount:
Item 1: Purchased goods in transit, shipped FOB destination, invoice price P 30,000 which includes
freight charge of P 1,500
Item 2: Goods held on consignment by Faith Company at a sales price of P 28,000, including sales
commission of 20% of the sales price.
Item 3: Goods sold to a customer, under terms FOB destination, invoiced for P 18,500 which includes P
1,000 freight charge to deliver the goods. Goods are in transit. The entity’s selling price is 140%
above cost
Item 4: Purchased goods in transit, terms FOB shipping point, invoice price P50,000, freight cost, P
2,500.
Item 5: Goods out on consignment to a consignee, sales price P35,000, shipping cost of P2,000.
Required: Compute the correct amount of inventoy on December 31, 2012..
Prob. 1
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
PROB. 2 – TRADE AND CASH DISCOUNTS
On June 1, 2012, Elaine Company sold merchandise with a list price of P 1,000,000 to a customer.
Elaine Company allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the sale
was made FOB shipping point. Elaine Company prepaid P 50,000 as delivery cost for the customer
as an accommodation.
On June 11, 2012, what amount is received by Elaine Company from the customer as full remittance?
Prob. 2
List price 1,000,000
Trade discount (20% x 1,000,000) (200,000)
800,000
2nd Trade discount (10% x 800,000) (80,000)
Invoice price 720,000
Cash discount (5% x 720,000) (36,000)
Net amount 684,000
Freight charge 50,000
Total remittance 734,000
PROB. 3 – PERIODIC FIFO – COST OF INVENTORY
Hilltop Company sells a new product. During a move to a new location, the inventory records for the
product were misplaced. The bookkeeper has been able to gather some information from the purchases
and sales records. The July purchases are as follows:
Quantity Unit Cost Total Cost
July 5 10,000 65 650,000
9 12,000 63 756,000
12 15,000 60 900,000
25 14,000 62 868,000
51,000 3,174,000
On July 31, 15,000 units were on hand. The sales for July amount to P 6,000,000, or 60,000 units at P
100 per unit. Hilltop Company has always used a periodic FIFO inventory costing system. Gross profit
on sales for July was P 2,400,000.
Required: Compute the cost of inventory on July 1
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Prob. 3
Sales 6,000,000
Gross profit (2,400,000)
Cost of goods sold 3,600,000
Inventory – July 31 (see below) 928,000
Goods available for sale 4,528,000
Purchases (3,174,000)
Inventory – July 1 1,354,000
PROB. 4 – MOVING AVERAGE METHOD
The following data were extracted from the records of Jailbird Company about its inventory for the month
of January of the current year.
Unit Unit Cost Total Cost
Jan 1 Beginning 16,000 140 2,240,000
5 Purchase 4,000 150 600,000
10 Sale 15,000
15 Purchase 20,000 160 3,200,000
16 Purchase return 1,000 160 160,000
25 Sale 8,000
26 Sale return 4,000
31 Purchase 30,000 150 4,500,000
What is the moving average cost of the inventory on January 31?
a) 7,625,000 b) 7,500,000 c) 7,690,000 d) 7,530,000
Prob. 4
Inventory, in units, Jan. 31 50,000
x moving ave unit cost 152.50
Moving ave cost of invty, Jan. 31 P 7,625,000 (a)
PROB. 5 – NET REALIZABLE VALUE
Matrimony Company has determined its December 31,2012 inventory on a FIFO basis to be P 4,000,000.
Information pertaining to the inventory follows:
Estimated selling price 4,050,000
Estimated cost of disposal 200,000
Normal profit margin 500,000
Current replacement cost 3,500,000
The entity records losses that result from applying the lower of cost or net realizable value.
On December 31, 2012, what is the carrying amount of the inventory?
a) 4,000,000 b) 3,850,000 c) 3,350,000 d) 3,500,000
Prob. 5
Estimated selling price 4,050,000
Cost of disposal (200,000)
Net realizable value (lower than cost) 3,850,000 (b)
PROB. 6 – PURCHASE COMMITMENT
On Nov. 15, 2012, Diamond Company entered into a commitment to purchase 10,000 ounces of gold on
Feb. 15, 2013 at a price of P 310 per ounce. On Dec. 31, 2012, the market price of gold is P 270 per
ounce. On Feb. 15, 2013, the price of gold is P 300 per ounce.
What is the gain on purchase commitment that should be recognized on Feb. 15, 2013?
10,000 ounces x (300 – 270) P 300,000 (gain on purchase commitment)
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PROB. 7 – GROSS PROFIT METHOD – Invty Valuation
The following information is provided by Era Company for the current year:
Inventory, January 1 500,000
Purchases 2,000,000
Freight in 100,000
Purchase return and allowance 120,000
Purchase discount 80,000
Sales 2,200,000
Sales return 100,000
Sales allowance 50,000
Sales discount 50,000
Gross profit rate on cost 25%
Under the gross profit method, what is the estimated cost of the inventory on December 31?
a) 720,000 b) 825,000 c) 800,0000 d) 900,000
Prob. 7
Inventory, Jan. 1 500,000
Net Purchases:
Purchases 2,000,000
Freight-in 100,000
Purch returns, allow. (120,000)
Purchase discount ( 80,000) 1,900,000
Goods available for sale 2,400,000
Less Cost of sales:
Sales 2,200,000
Sales returns (100,000)
Net sales 2,100,000
COS = 2,100 / 125% 1,680,000
Inventory, Dec. 31 720,000 (a)
PROB. 8 - RETAIL METHOD (CONSERVATIVE COST and AVERAGE COST)
Headstrong Company provided the following data:
Cost Retail
Beginning inventory 168,000 400,000
Purchases 2,806,000 3,100,000
Freight-in 42,000
Markup 300,000
Markup cancellation 30,000
Markdown 150,000
Markdown cancellation 40,000
Sales 3,000,000
Physical inventory at yearend 500,000
Estimated normal shrinkage is 4% of sales
Required:
Compute the ending inventory applying the conservative retail and determine any inventory shortage.
Prob. 8
Cost Retail
Beginning inventory 168,000 400,000
Purchases 2,806,000 3,100,000
Freight-in 42,000
Markup 300,000
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Markup cancellation (30,000)
Goods avail for sale-conservative 3,016,000 3,770,000
Cost ratio (3,016/3,770) = 80%
Markdown (150,000)
Markdown cancellation 40,000
Goods avail for sale-average 3,016,000 3,660,000
Less Sales 3,000,000
Shrinkage (4% x 3,000,000) 120,000 3,120,000
Ending inventory 540,000
Conservative cost (540,000 x 80%) 432,000
Physical inventory (500,000 x 80%) 400,000
Shortage 32,000
