196625960-Chapter-5-Inventories-and-Related-Expenses.pdf

Chapter 5  Inventories and Related Expenses MULTIPLE CHOICE – THEORY 1. C 6. D

2. D 7. A

3. A 8. A

4. C 9. D

Problem 1 (Goodwill Company) Inventories Cost of Sales 16,000 + 13,200 + 26,100 + 19,200 + 14,300 = 88,800

5. A 10. D

88,800 88,800

 Accounts Payable Cost of Sales

15,920

Inventories Cost of Sales

13,500

Cost of Sales  Accounts Payable Payabl e

13,500

Cost of Sales  Accounts Payable Payabl e

4,200

Inventories  Accounts Payable Payabl e 16,000 + 6,200 = 22,200 or two separate entries for purchases and inclusion in ending inventory

22,200

Cost of Sales Inventories

85,000

Sales

98,000

15,920

13,500

13,500

4,200

22,200

85,000

 Accounts Receivable Receiv able

98,000

Inventories Cost of Sales

65,000

Cost of Sales Inventories

17,600

65,000

17,600

Problem 2 (Victory Enterprises) Inventory, per client Goods shipped to customer on Dec 31, 2010 (presumed in transit), FOB destination Goods in transit, shipped by a supplier FOB shipping point Correct inventory amount, December 31 Inventories Cost of Sales

P 441,800 38,000 51,000 P 530,800

89,000 89,000

Chapter 5  Inventories and Related Expenses Problem 3 (Raindrops Company) (a) Correct inventory, November 30 Purchases in November 12,000 + 14,000 Units sold (50,000 – 4,000) Correct inventory level, December 31

55,000 26,000 (46,000) 35,000

(b) Adjusting entries: Cost of Sales (unrecorded purchases)  Accounts Payable 14,000 x 90 = P1,120,000

1,260,000 1,260,000

Sales (4,000 x 125)  Accounts Receivable

500,000

Inventories (18,000 x 90) Cost of Sales

1,620,000

500,000

1,620,000

Inventories, November 30 Received in December Shipped out Goods reported Correct inventory level Understatement in units

55,000 12,000 (50,000) 17,000 35,000 18,000

Problem 4 (Bulls Company) (a)

Net adjustment to Inventory = 21,096 net debit (See audit adjustments) Inventory, per count Net adjustment to inventory Inventory, per audit

(b)

P98,000 21,096 P119,096

Adjusting entries Sales

15,773  Accounts Receivable 5,841 + 7,922 + 2,010

15,773

Cost of Sales / Purchases  Accounts Payable

2,183

Inventory

8,120

2,183

Cost of Sales / Income Summary

8,120

Inventory (12,700 /125%) Cost of Sales / Income Summary

10,160 10,160

Sales

19,270  Accounts Receivable

19,270

Inventory (19,270/125%) Cost of Sales

15,416 15,416

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Chapter 5  Inventories and Related Expenses Miscellaneous Receivables (from Carrier) Inventory 11,250 + 1,350

12,600 12,600

Problem 5 Inventory 2,400,000

Initial amounts  Adjustments: a. b. c. d. e. f. g. h. Net adjustment Corrected balances

a.

65,000 50,000 32,000 61,000 27,000

Sales

Inventory

65,000 65,000

Inventory

50,000 50,000

Sales Returns and Allowances  Accounts Receivable

45,000

Inventory

32,000

45,000

32,000

Inventory

61,000 Cost of Sales

f.

61,000

Inventory

27,000 Cost of Sales

g.

h.

56,000 8,000 129,000 P929,000

60,000

Cost of Sales e.

(45,000)

60,000

Cost of Sales d.

65,000

4,000 239,000 P2,639,000

 Accounts Payable c.

Net Sales 10,150,000 (60,000)

 Accounts Receivable b.

Accts Payable 800,000

27,000

Cost of Sales  Accounts Payable

56,000

Cost of Sales Inventory  Accounts Payable

4,000 4,000

56,000

8,000

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(105,000) P10,045,000

Chapter 5  Inventories and Related Expenses Problem 6 (Firenze Fashions) General Ledger P 221,020

Unadjusted balances Goods held on consignment Goods purchased FOB shipping point, in transit Goods shipped out FOB destination, in transit Goods purchased and received, but not yet recorded Goods sold, still unrecorded Unsalable goods Balance per audit

24,000 27,300 (63,000) (26,500) P 182,820

 Audit Adjustments Sales

39,000  Accounts Receivable

39,000

Inventory

24,000 Cost of Sales

24,000

Inventory

27,300  Accounts Payable

27,300

 Accounts Receivable Sales

96,000

Cost of Sales Inventory

63,000

Loss from Inventory Obsolescence Inventory

26,500

96,000

63,000

26,500

Problem 7 No entry on the P100,000 shipment Inventory (75% x 80,000) Cost of Sales

60,000

 Accounts Receivable Sales

60,000

Sales

40,000

60,000

60,000

 Accounts Receivable

40,000

Inventory

30,000 Cost of Sales

30,000

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Physical Count P 212,820 ( 66,000) 12,000 24,000

P 182,820

Chapter 5  Inventories and Related Expenses Problem 8 (Maligaya Corporation) Overall Gross Profit Ratio Inventory, January 1, 2011 Net Purchases 2011 and 2012 (2,800,000 + 2,350,000) Goods available for sale Less: inventory, December 31, 2012 Cost of goods sold, 2005 and 2006 Sales – 2011 and 2012 (5,300,000 + 3,900,000) Less: Cost of goods sold Gross Profit

P 660,000 5,150,000 P5,810,000 750,000 P5,060,000 P9,200,000 5,060,000 P4,140,000

Gross Profit Ratio = 4,140,000/ 9,200,000

45%

Inventory Fire Loss Inventory, January 1, 2013 P 750,000  Add: Purchases January 1 to April 15, 2013 January 1 to March 31 P 520,000  April 1 to 15 Paid 34,000 Unpaid 106,000 Purchase returns ( 9,500) 650,500 Total goods available for sale P1,400,500 Less; Cost of goods sold, January 1 to April 15  Accounts Receivable, April 15 P 360,000 Write off 80,000 Collections (129,500 – 9,500) 120,000  Accounts Receivable, March 31 ( 400,000) Sales, April 1 to 15 P 160,000 Sales, January 1 to March 31 1,350,000 Sales, January 1 to April 15 P1,510,000 Cost ratio (100% - 45% ) 55% 830,500 Inventory, April 15, before the fire P 570,000 Less: undamaged goods (in transit) P 23,000 Proceeds from sale of damaged goods (lower than cost) 30,000 53,000 Inventory fire loss P 517,000

Problem 9 (Billy Corporation) 11 months ended May 31 P 6,750,000 75,000 (10,000) (20,000) (55,000) P6,740,000

Purchases per client Shipments received in May but recorded in June Credit memoranda not recorded Deposit for July purchases recorded as April purchases Deposit in May, recorded as purchases Purchases, per audit (a)

Inventory, July 1, 2011 Purchases, July 1, 2011 to May 31, 2013 Total goods available for sale Less: Inventory, May 31, 2013 (950,000 – 55,000) Cost of goods sold July 1, 2011 to May 31, 2013

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P 875,000 6,740,000 P7,615,000 895,000 P6,720,000

Year ended June 30 P 8,000,000 (15,000) (20,000) 55,000 P8,020,000

Chapter 5  Inventories and Related Expenses

(b)

(c)

Gross profit 8,400,000 – 6,720,000 = Gross profit ratio = 1,680,000/ 8,400,000

1,680,000 20%

Sales in June at normal selling price (P9,600,000 – 8,400,000) – 100,000 Cost ratio Cost of goods sold in June at normal selling price Cost of merchandise sold at cost Cost of goods sold in June

P1,100,000 80% P 880,000 100,000 P980,000

Inventory, May 31. 2012 Purchases in June (8,020,000 – 6,740,000) Goods available for sale Cost of goods sold in June Inventory, June 30

P895,000 1,280,000 2,175,000 980,000 1,195,000

Inventory, July 1, 2011 Purchases July 1, 2011 – June 30, 2012 Total goods available for sale Cost of goods sold (9,600,000 – 100,000) x 80% =7,600,000 100,000 Inventory, June 30, 2012

875,000 8,020,000 8,895,000 7,700,000 1,195,000

Problem 10 (Chi Fi Fai)  Audit Adjusting Entries:  Accounts Receivable Sales

50,000

Cost of Sales (50,000 x 80/120) Inventory

33,333

Other Operating Expenses – Loss from Inventory Contamination Cost of Sales

800,000

50,000

33,333

800,000

Cost of Sales 36,000  Accounts Payable 36,000 (The company credited Cost of Sales on December 29 to adjust the stock cards inventory to inventory list, per physical count.) Decline in Net Realizable Value of Inventory  Allowance to Reduce Inventory to Net Realizable Value Cost of Sales (400,000 – 80,000)  Accounts Payable (1.) (2.) (3.) (4.) (5.) (6.) (7.)

90,000 90,000 320,000 320,000

Inventory is overstated by P33,333 as a result of goods out on consignment. The Accounts Receivable is understated by P50,000, as a result of goods out on consignment. The net income is understated by P16,667, as a result of goods out on consignment. The accounts payable shall be increased by P320,000. The gross profit is increased by P80,000, which in effect is the commission income. Inventory at cost, per audit = P890,000 – P33,333 = P856,667. The inventory shall be presented at P766,667, which is the cost of P856,667 reduced by the allowance for decline in net realizable value of P90,000.

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Chapter 5  Inventories and Related Expenses Problem 11 (Global Company)  Audit Adjustments Selling and Administrative Expenses Receivables from Employees Petty Cash Fund

16,000 1,500

Cash in Banks – BDO Value Added Tax Payable

32,000

Notes Payable – Bank Interest Expense Cash in Banks – Asian Bank

50,000 18,000

17,500

32,000

68,000

Selling and Administrative Expenses Cash in Banks – BPI

200 200

Equipment Acquisition Fund Cash in Banks – PNB

1,100,000 1,100,000

 Allowance for Doubtful Accounts  Accounts Receivable (70% x 240,000)

168,000

Finished Goods Inventory Cost of Sales 200,000 x 60% x 50% = 60,000

60,000

Sales

75,000

168,000

60,000

 Accounts Receivable 60,000 / 80%

75,000

Inventory of Spoiled Goods and Scrap Materials Cost of Sales Work in Process Inventory

42,000 38,000

Inventory of Spoiled Goods and Scrap Materials Cost of Sales

55,000

Selling and Administrative Expenses  Allowance for Doubtful Accounts  Accounts receivable, per client  Adjustments Balance per audit  Account of Blue Ridge 240,000 – 168,000 Remaining accounts Provision rate on remaining Required Allowance for D. A. Balance of allowance 170,000 – 168,000  Additional doubtful accounts expense

80,000

55,000 152,250 152,250 P3,400,000 ( 168,000) ( 75,000) P3,157,000 ( 72,000) P3,085,000 5% P 154,250 ( 2,000) P 152,250

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Chapter 5  Inventories and Related Expenses (1) Petty Cash Fund = (2) Cash on deposits with Asian Bank = 400,000 – 68,000 (3) Cash on deposits with Security Bank = 350,000 – 50,000 (4) Cash on deposits with Banco de Oro = (12,000) + 32,000 (5) Cash on deposits with BPI = 200,000 – 200 (6) Cash on deposits with PNB (7) Total Cash in Bank – Current Assets = 332,000 + 300,000 + 20,000 + 199,800 = (8)  Accounts Receivable (9)  Allowance for Uncollectible Accounts (10) Uncollectible Accounts Expense = 80,000 + 152,250 (11) Finished Goods Inventory = 600,000 + 60,000 (12) Work in Process Inventory = 1,000,000 – 80,000 (13) Raw Materials Inventory = (14) Inventory of Spoiled Goods and Scrap Materials = 80,000 + 42,000 + 55,000 (15) Sales = 6.000,000 – 75,000 (16) Cost of Sales = 4,200,000 – 60,000 + 38,000 – 55,000 (17) Selling and Administrative Expenses = 500,000 + 16,000 + 200 + 152,250 (18) Other Operating Income (19) Interest Expense and Finance Costs = 200,000 + 18,000

P2,500 P332,000 P300,000 P 20,000 P199,800 P1,100,000 P851,800 P3,157,000 P154,250 P232,250 P660,000 P920,000 P400,000 P177,000 P5,925,000 P4,123,000 P668,450 P120,000 P218,000

MULTIPLE CHOICE - PROBLEMS 1. 2. 3. 4. 5. 6.

A C C C A P6,566

7. B 8. B 9. C 10. C 11. D 12. A

13. 14. 15. 16. 17. 18.

C B A C B A

19. 20. 21. 22.

C C D A

Solutions: 1.

Cash = 240,800 – 163,650 + 90,000

P167,150

2.

Accounts Receivable = 563,500 + 77,500

P641,000

3.

Inventory = 1,512,500 + 68,750 + 54,375 – 159,375 + 32,500

P1,508,750

4.

Accounts Payable = 1,050,250 + 93,100 + 54,375 – 43,750

P1,153,975

5.

Inventory, January 1 Purchases Goods available for sale Cost of goods sold (4,000,000 x 70%) Inventory, based on gross profit test Inventory, per count Missing inventory

P 450,000 3,150,000 P3,600,000 2,800,000 P 800,000 750,000 P 50,000

6.

Cost P14,200 32,600

Inventory, January 1 Purchases  Additional markup Markdown Goods available for sale Cost ratio = 46,800 / 69,800 = 67% Sales

P46,800

Retail P20,100 50,000 1,900 (2,200) P69,800 60,000

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Chapter 5  Inventories and Related Expenses Ending inventory at retail Cost ratio Inventory, December 31

7.

P 9,800 67% P6,566

Inventory, December 31, 2011 Purchases 1,410,000 + 10,000 – 20,000 Goods available for sale Cost of goods sold  Accounts receivable, December 31 Collections  Accounts receivable, January 1 Sales on account Cash sales Total sales Cost ratio Ending inventory before shortage Inventory, per count Inventory shortage

P 320,000 1,400,000 P1,720,000 P 300,000 1,800,000 ( 250,000) P1,850,000 350,000 P2,200,000 60%

1,320,000 P400,000 360,000 P 40,000

Items 8 and 9 Per audit: P225,000 300,000 375,000 P900,000

Overhead = 25% x P900,000 = Direct labor cost = P225,000/75% Direct materials 900,000 – 225,000 – 300,000 Total manufacturing cost

Per client P225,000 275,000 400,000

Let x be the ending work in process inventory .6 x is the beginning inventory .6x + 900,000 – x = 800,000 100,000 = .4x x = 250,000 10.

Sales per client Returned goods Goods shipped in December Goods shipped in January Correct sales

P2,300,000 ( 50,000) 80,000 ( 100,000) P2,230,000

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Adjustment P 0 25,000 (25,000)

Chapter 5  Inventories and Related Expenses Items 11 through 14

Per client Parts held on consignment, recorded as purchases and included in inventory Parts sold still included in inventory Parts sold FOB shipping point Goods out on consignment Goods purchased in transit, FOB shipping point Freight bill, unrecorded, relating to unsold goods Cash discounts available Per audit

Inventory

Accounts Payable

Sales

1,250,000 (155,000)

1,000,000 (155,000)

9,000,000

Effect on Cost of Sales ---

(22,000)

22,000 40,000

210,000 25,000

(210,000) 25,000

2,000

2,000

(5,300) 1,304,700

(5,300) 866,700

Inventory

Purchases P 17,940

9,040,000

(188,000)

Sales

Net income P(17,940) (31,380) (12,150) 18,200 P(7,390)

Items 15 through 18 March purchases recorded in Apr Shipments in April Goods shipped on March 31 Goods not counted Understate (overstatement)

(31,380) (12,150) 18,200 P6,050

19.

Cash balance, December 31, 2010 Payment on accounts payable Payment for operating expenses Total cash available Cash balance, December 31, 2009 Collection on notes receivable Sales Unit sales price Units sold

20.

Average cost of purchases 32.60 + 32.60 x 0.10 (11 months) 2

22.

Units in the beginning inventory Units purchased 1,500 x 12 Units sold Units in the ending inventory

P(31,380) P353,300 474,700 220,000 P1,048,000 (100,000) ( 25,000) P923,000 P 50 18,460

 Accounts payable, Beginning Purchases 1,500 x 12 months x P33.15 Payments on accounts payable  Accounts payable, ending 21.

P17,940

P 33.15

P 75,000 596,700 (474,700) P197,000 199,875 / 32.50

Valued as follows 1,500 x 33.70 1,500 x 33.60 1,500 x 33.50 1,190 x 33.40 Inventory, December 31, 2012

6,150 18,000 (18,460) 5,690

P50,550 50,400 50,250 39,746 P190,946

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Chapter 5  Inventories and Related Expenses TIGER CORPORATION

Per count Coins and currencies Checks Petty cash vouchers December 2012 January 2013 Advances to Officers and Employees December 2012 January 2013 Total per count Cashier’s accountability Petty cash fund Collections December collection P1,500 January 2006 collection 2,700 Cash shortage

P4,700 4,200 P1,900 500

2,400

P 900 300

1,200 P12,500

P10,000

4,200

14,200 P1,700

Cash in Bank Unadjusted Balances Deposits in transit Unrecorded and undeposited collections (see above) Unreleased checks Stale checks Outstanding checks (22,630 – 5,750 – 4,280) Uncollected note from Sergio Garcia Principal P3,600 Interest 108 DAIF Check from customer Service charges Adjusted balances

Per Bank P252,742 10,700 1,500

Per Books P247,820 1,500 5,750 4,280

(12,600)

P252,342

(3,708) (2,850) ( 450) P252,342

Adjusting entries Selling and Administrative Expenses  Receivable from Officers and Employees (900 + 1,700)  Petty Cash Fund

1,900 2,600

Cash in Bank  Accounts Receivable  Accounts Payable (5,750 + 4,280)

11,530

4,500

1,500 10,030

 Accounts Receivable (3,708 + 2,850) Selling and Administrative Expenses Cash in Bank

6,558 450

Sales

8,000

7,008

 Accounts Receivable

8,000

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Chapter 5  Inventories and Related Expenses  Inventories Cost of Sales

7,500

Sales

10,000

7,500

 Accounts Receivable

10,000

 Accounts Receivable Sales

12,000

Cost of Sales  Inventories

10,200

12,000

10,200

 Allowance for Doubtful Accounts Selling and Administrative Expenses

47 47

Accounts Receivable Per client Adjustments

Per Audit Provision rate for uncollectibles Required allowance Existing allowance Deductions from uncollectible accounts expense  Notes Receivable  Notes Payable

P328,300 ( 1,500) 6,558 (8,000) (10,000) 12,000 P327,358 5% P 16,368 16,415 P ( 47) 10,000 10,000

 Interest Expense  Interest Payable 10,000 x 22% x 30/360 = 183

183 183

 Interest Receivable  Interest Income 20,000 x 18% x 77/360 = P770 15,000 x 20% x 59/360 = 492 8,000 x 15% x 46/360 = 153 Total P1,415

1,415

 Income Tax Payable  Income Tax Expense 35,065 – 32,135 = 3,127

2,930

1,415

2,930

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Chapter 5  Inventories and Related Expenses Answers: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20.

Petty Cash Cash in bank Accounts receivable Allowance for doubtful accounts Notes receivable Interest receivable Merchandise inventory Receivables from officers and Employees  Accounts payable Notes payable Interest Payable Income tax payable Sales Cost of sales Selling and administrative expenses Bad debts expense Interest income Interest expense and bank charges Net income Total assets

P5,500 252.342 327,358 16,368 43,000 1,415 221,300 12,840 397,030 73,070 11,363 10,162 1,869,000 1,184,700 530,300 12,553 9,820 56,703 72,838 2,224,430

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