2014 Vol 1 Ch 4 Answers

Chapter 4 - Inventories CHAPTER 4 INVENTORIES PROBLEMS 4-1.(Hamster Company) Include Goods displayed in the store

√

Goods stocked in the warehouse, not covered by any sales contract

√

Goods purchased, in transit, shipped FOB seller

√

Exclude

Goods purchased, in transit, shipped FOB destination Freight cost on goods received, goods are still unsold

√ √

Goods held on consignment

4-2.

4-3.

√

Goods out on consignment

√

Goods out to customers on approval

√

Goods in the hands of traveling salesmen

√

Goods sold with a buyback arrangement for the full selling price and other costs incurred by the buyer

√

Unused factory supplies and indirect materials

√

Goods which require additional processing

√

Direct materials stocked in the warehouse

√

Storage costs of goods completed

√

Insurance premiums paid on stocked goods

√

Goods completed, manufactured to customer’s specification, awaiting instruction for delivery by the customer

√

Freight paid on goods sold

√

Unused supplies for administrative purposes

√

Unused store supplies

√

Goods sold with a right to return granted to buyers, amount of return is reasonably predictable.

√

(Crossings Company) Invoice price (150,000 x 0.80 x 0.90) Freight charge Total cost of merchandise purchases

P 108,000 2,500 P 110,500

(Jane, Inc.)

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Chapter 4 - Inventories

4-4.

4-5.

4-6.

4-7.

Reported units on April 30, 2013 Adjustments: No. 1 item – Purchased FOB shipping point still in transit not included in purchases No. 3 item – Sold FOB destination still in transit not included in inventory Correct inventory quantity (Orient Trading) Reported inventory Merchandise in transit purchased FOB destination Goods held on consignment Mark up on goods out on consignment Sales price 600,000 Cost (600,000÷ 1.5) 400,000 Merchandise in transit to customers FOB destination 400,000 x (100% - 40%) Correct inventory (Tintin Company) Physical inventory at December 31, 2013 Merchandise in transit shipped FOB shipping point Merchandise sold FOB destination still in transit Correct inventory at December 31, 2013

10,200

250 500 10,950 P9,500,000 (420,000) (500,000)

(200,000) 240,000 P8,620,000

P 172,000 31,500 12,500 P 216,000

(Centerpoint, Inc.) Reported inventory Adjustments: a. Goods out on consignment b. Goods purchased in transit FOB shipping point c. Goods sold in transit FOB shipping point included in inventory d. Goods sold in transit FOB destination not included in inventory g. Goods sold in transit FOB destination not included in inventory Correct inventory

P 562,500 110,000 27,000 (85,000) 26,000 37,000 P 677,500

(Mega Company) FIFO Weighted average Moving average FIFO

Cost of Ending Inventory 3,506 3,333 3,370

Cost of Goods Sold 4,550 4,726 4,686

Gross Profit 1,955 1,779 1,819

Cost of ending inventory: 275 x 11.75 25 x 11.00

3,231.25 275.00

3,506.25

Cost of goods sold: Cost of goods available for sale Less ending inventory

8,056.25 3,506.25

4,550.00

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Chapter 4 - Inventories Gross profit: Sales Less cost of goods sold

6,505.00 4,550.00

Weighted average Cost of ending inventory: Cost of goods available for sale Number of units available for sale Weighted average cost per unit Units in ending inventory

8,056.25 ÷ 725 11.11 x 300

3,333.00

Cost of goods sold: Cost of goods available for sale Less ending inventory

8,056.25 3,330.00

4,726.15

Gross profit: Sales Less cost of goods sold

6,505.00 4,726.25

1,778.75

Moving average Cost of ending inventory: Inventory, January 1 Purchase, March 7 Total Sale, May 20 Sale, June 30 Balance Purchase, July 15 Total Sale, September 17 Balance

4-8.

1,955.00

250 x 10.50 = 2,625.00 200 x 11.00 = 2,200.00 450 x 10.72 = 4,825.00 (120 x 10.72 = 1,286.40) ( 55 x 10.72 = 589.60) 275 x 10.72 = 2,949.00 275 x 11.75 = 3,231.25 550 x 11.24 = 6,180.25 (250 x 11.24 = 2,810.00) 300 x 11.24 =

3,370.25

Cost of goods sold: Cost of goods available for sale Less ending inventory

8,056.25 3,370.25

4,686.00

Gross profit: Sales Less cost of goods sold

6,505.00 4,686.00

1,819.00

(Landmark Enterprises) a. Cost of ending inventory 1/1 2,400@ 10.75 25,800 1/5 1,900@ 11.35 21,565 4,300@ 11.02 47,365 1/8 2,200@ 11.02 24,244 2,100@ 11.01 23,121 1/24 3,800@ 11.80 44,840 5,900@ 11.52 67,961 1/30 3,600@ 11.52 41,472 2,300@ 11.52 26,489 b.

Cost of goods available for sale (25,800 + 21,565 + 44,840)

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P92,205

Chapter 4 - Inventories Number of units available for sale (2,400 + 1,900 + 3,800) Weighted average cost per unit Number of units in ending inventory Cost of ending inventory 4-9.

(Rockwell Club, Inc.) Cost of sales: Sales (160,500 x 12) 1,926,000 Less gross profit 738,600 Add ending inventory 42,000 x 7.40 310,800 3,000 x 7.20 21,600 Available for sale Deduct purchases Inventory, January 1 Average cost per unit (369,750 ÷ 51,000 units)

4-10.

4-12.

4-13.

Amount

Units

P1,187,400

160,500

332,400 P1,519,800 1,150,050 P 369,750

45,000 205,500 154,500 51,000 P 7.25

(Sta. Lucia Company) Reported profit under average method Difference in inventory using FIFO Beginning inventory Ending inventory Profit under FIFO basis

4-11.

÷ 8,100 P 11,38 x 2,300 P26,174

2011 P3,600,000

2012 P5,000,000

2013 P7,000,000

40,000 P3,640,000

(

(120,000) 650,000 P7,530,000

40,000) 120,000 P5,080,000

(City Company) Cost (under FIFO basis) Net realizable value (40,000 – 12,000) Lower of cost and net realizable value (Rustan’s Trading) Product A B C D Total

Cost 102 45 24 9

P26,000 P28,000 P26,000

NRV 105 42 22 10

Lower 102 42 22 9

Quantity 4,000 6,000 5,500 7,200

Amount P408,000 252,000 121,000 64,800 P845,800

Dechavez Company (a) Direct Method

The profit is computed as follows: 2013 P3,200,000 (1,280,000) P1,920,000 (450,000)

Sales Cost of goods sold Gross profit Selling expenses

29

2012 P2,900,000 (1,020,000) P1,880,000 (330,000)

Chapter 4 - Inventories General and administrative expenses Profit

(300,000) P 1,170,000

Cost of goods sold: Beginning inventory Purchases Total cost of goods available for sale Ending inventory Cost of goods sold

P 480,000 1,400,000 P1,880,000 600,000 P1,280,000

(310,000) P 1,240,000

P

300,000 1,200,000 P 1,500,000 480,000 P 1,020,000

(b) Allowance method

The profit is computed as follows: 2013 P3,200,000 (1,240,000) P1,960,000 (450,000) (300,000) (40,000 __________P 1,170,000

Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Decline in NRV Gain on adjustment of allowance Profit Cost of goods sold: Beginning inventory Purchases Total cost of goods available for sale Ending inventory Cost of goods sold

4-14.

4-15.

4-16.

P 500,000 1,400,000 P1,900,000 (660,000) P1,240,000

2012 P2,900,000 (1,080,000) P1,820,000 (330,000 (310,000) 60,000 P 1,240,000

P

380,000 1,200,000 P 1,580,000 500,000 P 1,080,000

(Purple Company) Cost Net realizable value (204,000 – 10,000) Loss

P200,000 194,000 6,000

(Powder Blue Company) Inventory, January 1 Purchases during the year Cost of goods available for sale Less Inventory, December 31 Cost of goods sold

P1,400,000 6,600,000 P8,000,000 1,200,000 P6,800,000

(Philam Grocers Company) (a) Cost of product X and product Y January 1 inventory Purchases Sold December 31 inventory Unit cost (all coming from latest purchase price, as ending inventory is less than number in latest purchases)

30

Product X 2,500 units 7,400 units (7,000 units) 2,900 units

Product Y 1,500 units 4,500 units (5,000 units) 1,000 units

P125

P98

Chapter 4 - Inventories Ending inventory at FIFO cost

P362,500

P98,000

(b) Product X Product Y Sales price (effective 2014) 90% x previous SP P135.00 P111.60 Estimated selling cost (13.50) (11.16) Net realizable value P121.50 P100.44 Lower of cost and net realizable value, per unit P121.50 P98 Number of units in ending inventory 2,900 units 1,000 units Inventory value at lower of cost and NRV P352,350 P98,000 Total inventory value at December 31, 2013 352,350+98,000 = P450,350 (c) Cost of goods sold in the statement of comprehensive income Product X Product Y Inventory Jan. 1 P300,000 P135,000 Purchases 916,600 432,500 Goods available for sale P1,216,600 P567,500 Ending inventory at cost 362,500 98,000 Cost of goods sold (d)

Inventory at cost Inventory at lower of cost and NRV Required allowance Existing allowance Gain on adjustment of allowance

(e)

Inventory Income Summary

Total P435,000 1,349,100 P1,784,100 460,500 P1,323,600

P460,500 450,350 P 10,150 15,000 P 4,850 460,500

(or using the cost of goods sold method) Inventory, December 31 Cost of goods sold Purchases Inventory, January 1

460,500 1,323,600 1,349,100 435,000

Allowance to Reduce Inventory to NRV 4,850 Gain on Adjustment of Allowance to Reduce Inventory to NRV

4-17.

(DEC Company) (a) Gross profit is 40% based on sales Merchandise inventory, January 1, 2013 Purchases for the year Cost of goods available for sale Less estimated cost of goods sold (4,200,000 x 60%) Estimated cost of ending inventory Physical inventory on December 31, 2013 Estimated cost of the missing inventory (b)

Gross profit is 40% based on cost of sales Merchandise inventory, January 1, 2013 Purchases for the year

31

460,500

4,850

P 450,000 3,150,000 P3,600,000 2,520,000 P 1,080,000 500,000 P 580,000

P 450,000 3,150,000

Chapter 4 - Inventories Cost of goods available for sale Less estimated cost of goods sold (4,200,000/1.40) Estimated cost of ending inventory Physical inventory on December 31, 2013 Estimated cost of the missing inventory

P3,600,000 3,000,000 P 600,000 500,000 P 100,000

4-18. Estimated cost of goods sold (705,000 – 18,000)/ 1.20 Add Inventory at July 20, 2013 Cost of goods available for sale Less net purchases for the period (650,000 – 12,000 + 6,000) Estimated cost of June 30, 2013 inventory 4-19.

4-20.

4-21.

(Manel’s Company) Merchandise inventory, January 1 Purchases (1,000,000 + 40,000 – 60,000) Available for sale Estimated cost of goods sold (3,200,000 x 70%) Estimated ending inventory Less goods undamaged located in showroom (200,000 + 80,000) Estimated cost of merchandise destroyed by the flood (Old Rose Company) Inventory, January 1, 2013 Purchases Freight in Cost of goods available for sale Estimated cost of goods sold (2,200,000 – 50,000) x 70% Estimated cost of ending inventory Inventory per actual count Shortage in inventory (Blazing Red Company) Inventory, January 1, 2012 Purchases: Payments to suppliers Accounts Payable, 8/28/12 Accounts Payable, 1/1/12 Cost of goods available for sale Estimated cost of goods sold: Collections from customers Accounts Receivable, 8/28/12 Accounts Receivable, 1/1/12 Sales Cost percentage Estimated cost of ending inventory

P572,500 205,000 P777,500 644,000 P133,500

P2,000,000 980,000 P2,980,000 2,240,000 P 740,000 280,000 P 460,000

P1,000,000 800,000 20,000 P1,820,000 1,505,000 P 315,000 160,000 P 155,000

P 575,400 P1,950,000 491,400 ( 352,560)

P3,015,200 515,560 ( 522,360) P3,008,400 70%

Estimated cost of ending inventory Less undamaged goods: Goods out on consignment Goods in transit Estimated inventory fire loss

2,088,840 P2,664,240

2,105,880 P 558,360

P 558,360 P 195,000 69,500

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264,500 P 293,860

Chapter 4 - Inventories

4-22.

(Chic Department Store) a. FIFO cost basis Inventory, June 1 Purchases Available for sale Sales Inventory, June 30 at retail Cost percentage (2,400,000/4,000,000) Estimated cost of inventory

b.

4-23.

Cost P 355,000 2,400,000 P2,755,000

Cost of goods available for sale Less estimated cost of ending inventory Estimated cost of goods sold

P2,800,000 750,000 P2,050,000

Average cost basis Inventory, June 30 at retail Cost percentage (2,755,000/4,750,000) Estimated cost of inventory

P1,250,000 58% P 725,000

Cost of goods available for sale Less estimated cost of ending inventory Estimated cost of goods sold

P2,800,000 725,000 P2,075,000

(London Company Average cost retail Cost 145,000 283,920

Beginning Inventory Purchases Additional markups Markup cancellations Markdown Markdown cancellations Total available for sale 428,920 Cost to retail ratio (428,920/565,600=75.8% Sales , net of sales returns Ending inventory at retail Ending inventory at average cost retail (130,800 x 75.8%) 4-24.

Retail P 750,000 4,000,000 P4,750,000 3,500,000 P1,250,000 60% P 750,000

Retail 160,000 420,800 25,200 (9,200) (38,100) 6,900 565,600 (434,800) 130,800 99,146

(Alemars Drygoods, Inc.) Beginning Inventory Purchases Markups (1,600 x 50) Markup cancellations (300 x 50) Markdowns Total Sales Revenue Ending Inventory, at retail Physical inventory on January 31, 2012 Inventory shortage at retail value

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Retail P1,050,000 735,000 80,000 ( 15,000) (105,000) P1,745,000 (1,050,000) P 695,000 665,000 P 30,000

Chapter 4 - Inventories

4-25.

(Uniwide Sales)

(a) (1) Average retail Beginning Inventory Purchases Purchase Allowance Freight In Departmental Transfers In Additional Markups Markup Cancellations Markdowns (6,000 – 4,500) Total Sales Inventory Shortage Ending Inventory, at retail Cost to retail ratio (523,380/671,000) Ending Inventory, at estimated average cost

Cost P185,700 339,380 ( 11,000) 7,300 2,000

_________ P523,380

Retail P202,000 458,000

3,000 12,000 ( 2,500) (1,500) P671,000 (374,000) (7,000) P290,000 78% P226,200

(2) FIFO retail (exclude the beginning inventory in computing the cost ratio) 337,680/469,000 = 72% Ending inventory at FIFO cost 72% x P290,000 = P208,800

(b) Cost of goods sold Average P523,380 (226,200) P297,180

Goods available for sale Ending inventory Cost of goods sold 4-26.

4-27.

FIFO P523,380 (208,800) P314,580

(Grand Central, Inc.) Profit reported for 2013 Adjustments: Overstatement of beginning inventory Understatement of ending inventory Cash advance for future manufacture and delivery of goods credited to sales revenue Correct net income for 2013 (USTFU Company) (a) Dec. 31, 2013 Loss on Purchase Commitments 50,000 Estimated Liability on Purchase Commitments 1,000 x (1,200 – 1,150) Feb. 28, 2014 Purchases Estimated Liability on Purchase Commitments Accounts Payable

34

1,150,000 50,000

P658,000 71,000 96,000 (60,000) P765,000

50,000

1,200,000

Chapter 4 - Inventories (b) Dec. 31, 2013 Loss on Purchase Commitments 50,000 Estimated Liability on Purchase Commitments 1,000 x (1,200 – 1,150) Feb. 28, 2014 Purchases 1,200,000 Estimated Liability on Purchase Commitments 50,000 Accounts Payable Recovery of Loss on Purchase Commitments

50,000

1,200,000 50,000

MULTIPLE CHOICE QUESTIONS Theory MC1 D MC2 A MC3 D MC4 D MC5 D

MC6 MC7 MC8 MC9 MC10

Problems MC22 MC23 MC24 MC25 MC26 MC27

D C A B D B

MC28 MC29 MC30 MC31

C B C C

MC32

A

MC33 MC34

C B

MC35 MC36 MC37

C C C

MC38

B

MC39

D

A A D A A

MC11 MC12 MC13 MC14 MC15

C A A C D

MC16 MC17 MC18 MC19 MC20 MC21

A D D C D D

90,000 x .80 x ..90 = 64,800; 64,800 + 5,000 = 69,800 150,000 x .85 x .90 x .95 = 109,012.50 109,012.50 x .98 = 106,832.25 3,280,000 + 900,000– 80,000 = 4,100,000 x 3% =123,000; 123,000–27,000=96,000 1,500,000 + 50,000 = 1,550,000 (b) 450,000 ÷ 1.5 = 300,000; (d) 600,000 + 60,000 = 660,000 (e) 300,000 ÷ 1.5 = 200,000 + 30,000 = 230,000 3,000,000 + 300,000 + 660,000 + 230,000) = 4,190,000 5,000,000 + 80,000 + 800,000 – 25,000 = 5,855,000 77,500 + 6,000 = 83,500 550,000 + 90,000 + 380,000 + 450,000 + (150,000 x .80) = 1,590,000 104,000 ÷ 1.3 = 80,000; 80,000 x .30 = 24,000 24,000 + 56,000 + (32,500 – 25,000) = 87,500 (3,000 x 35) + (2,000 x 36) + (1,000 x 37) = 214,000 Sales (4,000 x 25) + (2,000 x 26) = 152,000 CGS; 214,000 – 152,000 = 62,000 (1,600 x 8) + (4,800 x 9.60) = 58,880; 58,880 ÷ 6,400 = 9.20 Confidence: cost 22; NRV = 30 – 3 = 27; lower is 22 Positive attitude: cost 55; NRV = 80 – 28 = 52; lower is 52 (1,000 x 25)+(2,000 x 36)+(3,000 x 120) +(4,000 x 18) =529,000 600,000 + 1,500,000 – (2,240,000 ÷ 1.4) = 500,000 2,550,000 + 250,000 – 300,000 = 2,500,000 Purchases 2,800,000 + 900,000 – 700,000 = 3,000,000 Sales 3,000,000 ÷ 1.25 = 2,400,000 CGS 180,000 + 2,500,000 – 2,400,000 = 280,000; 280,000 – 110,000 =170,000 short CGS-2011 = 1,040,000; CGS-2012 =1,550,000; total CGS (2011 and 2012) = 2.59M 2011 and 2012 sales = 1,700,000 + 2,000,000 = 3,700,000; 2.59/3.7 = 70% 520,000 + 2,180,000 – (2,500,000 x 70%) = 950,000 950,000 – (70% x 150,000) – 95,000 = 750,000 408,8976 ÷ 524,200 = 78%; 450,200 – 5,100 = 445,100; 445,100 x 78% = 347,178 105,650 + (378,245 – 10,295) = 473,600; 473,600 - 347,178 =126,422

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Chapter 4 - Inventories

MC40

C

MC41

C

MC42

D

MC43 MC44

A C

MC45

D

126,422 – 69,738 – 5,000 = 51,684 400,000 + 1,280,000 –740,000 = 940,000 Direct materials used 940,000 + 960,000 + (50%x 906,000) = 2,380,000 Total mfg. Cost 4,000,000 x 75% = 3,000,000 Cost of goods sold 3,000,000 + 1,310,000 – 1,500,000 = 2,810,000 Cost of goods avail for sale 2,380,000 + 1,100,000 – 2,810,000 = 670,000 617,000 + 1,281,000 – 21,000 + 31,000 = 1,908,000 Avail for sale at cost 1,057,000 + 2,158,000 – 35,000 = 3,180,000 Avail for sale at retail 1,908,000 ÷ 3,180,000 = 60% Cost to retail ratio 3,180,000 – 2,365,000 + 62,000 = 877,000; 877,000 – 780,000 = 97,000 97,000 x 60% = 58,200 47,075 + 213,327 + 3,400 = 263,802 Avail for sale at cost 70,025 + 306,375 = 18,900 – 7,800 – 10,640 = 376,860 Avail for sale at retail 263,802 ÷ 376,860 = 70%; 320,500 x 70% = 224,350 376,860 – 320,500 = 56,360; 56,360 – 39,390 = 16,970; 16,970 x 70% = 11,879 23,000 + 120,000 = 143,000; 60,000 + 220,000 + 20,000 – 40,000 = 260,000 260,000 – 180,000 = 80,000; 143,000/260,000 = 55%; 55,000 P 80,000 =44,000 600,000 – 10,000 – 4,000 – 100,000 = 486,000

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