2015 Vol 1 Ch 4 Ans.pdf

CHAPTER 4 INVENTORIES PROBLEMS Discussion Question No. 15 (Hamster Company

Goods displayed in the store Goods stocked in the warehouse, not covered by any sales contract Goods purchased, in transit, shipped FOB seller Goods purchased, in transit, shipped FOB destination Freight cost on goods received, goods are still unsold Goods held on consignment 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. Goods sold under FAS, at the port designated by the buyer Goods at the port, purchased CIF

Include Exclude √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

PROBLEMS 4-1.

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

4-2.

(Jane, Inc.) 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

4-3.

P 108,000 2,500 P 110,500

(Orient Trading)

10,200 250 500 10,950

Chapter 4 - Inventories

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%) Merchandise purchased in transit FAS Correct inventory 4-4.

P9,500,000 (420,000) (500,000) (200,000) 240,000 150,000 P8,770,000

(Tintin Company) Physical inventory at December 31, 2015 Merchandise in transit shipped FOB shipping point Merchandise sold FOB destination still in transit Correct inventory at December 31, 2015

4-5.

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 e. not included in inventory g. Goods sold in transit FOB destination not included in inventory Correct inventory

4-6.

P 562,500 110,000 27,000 (

85,000) 26,000 37,000 P 677,500

(Mega Company) Cost of EI FIFO Weighted average Moving average

3,506 3,333 3,370

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

Gross Profit 1,955 1,779 1,819

FIFO Cost of ending inventory: 275 x 11.75 25 x 11.00 Cost of goods sold: Cost of goods available for sale Less ending inventory Gross profit: Sales Less cost of goods sold 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 Cost of goods sold: Cost of goods available for sale Less ending inventory

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3,231.25 275.00

3,506.25

8,056.25 3,506.25

4,550.00

6,505.00 4,550.00

1,955.00

8,056.25 ÷ 725 11.11 x 300

3,333.00

8,056.25 3,330.00

4,723.25

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

6,505.00 4,723.25

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 =

Cost of goods sold: Cost of goods available for sale Less ending inventory Gross profit: Sales Less cost of goods sold 4-7.

4-8.

3,370.25

8,056.25 3,370.25

4,686.00

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) 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 P26,174

P92,205 ÷ 8,100 P 11,38 x 2,300

(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)

4-9.

1,781.75

(Mazda Corporation) (a) FIFO Sales Cost of goods sold Gross profit

2013 P12,000,000 7,000,000 P 5,000,000

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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

2014 P18,800,000 12,760,000 P 6,040,000

2015 P29,400,000 20,250,000 P 9,150,000

Chapter 4 - Inventories

Cost of goods sold: 2013 10,000 2014 3,000 13,000 2015 5,000 19,000 (b)

x x x x x

700 700 820 820 850

= = = = =

Weighted average Sales Cost of goods sold Gross profit

7,000,000 2,100,000 10,660,000 4,100,000 16,150,000

20,250,000

2013 P12,000,000 7,000,000 P 5,000,000

2014 P18,800,000 12,845,760 P 5,954,240,

12,760,000

2015 P29,400,000 20,211,360 P 9,188,640

Cost of goods sold: 2013 10,000 x 700 7,000,000 2014 (3,000 x 700) + (18,000 x 820) x 16,000* 12,845,760 21,000 2015 (5,000 x 802.86) + (25,000 x 850) x 24,000* 20,211,360 30,000 *unit costs were rounded off to nearest centavo: 802.86 and 842.14, for 2014 and 2015, respectively. 4-10.

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

4-11.

2013 P3,600,000

2014 P5,000,000

2015 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

4-12.

(Rustan’s Trading) Product A B C D Total

4-13.

P26,000 P28,000 P26,000

Cost 102 45 24 9

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: Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Profit Cost of goods sold: Beginning inventory Purchases Total cost of goods available for sale

30

2015 P3,200,000 (1,280,000) P1,920,000 (450,000) (300,000) P 1,170,000 P 480,000 1,400,000 P1,880,000

2014 P2,900,000 (1,020,000) P1,880,000 (330,000) (310,000) P 1,240,000 P

300,000 1,200,000 P 1,500,000

Chapter 4 - Inventories Ending inventory Cost of goods sold (b) Allowance method The profit is computed as follows: 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.

600,000 P1,280,000

480,000 P 1,020,000

2015 P3,200,000 (1,240,000) P1,960,000 (450,000) (300,000) (40,000 __________P 1,170,000

2014 P2,900,000 (1,080,000) P1,820,000 (330,000 (310,000)

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

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

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

4-16.

P

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

4-15.

60,000 P 1,240,000

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

January 1 inventory Purchases Sold December 31 inventory Unit cost (all coming from latest purchase price, as ending inventory is less than latest purchases) Ending inventory at FIFO cost

2,900 units

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

P125 P362,500

P98 P98,000

(b) Sales price (effective 2014) 90% x previous SP Estimated selling cost Net realizable value Lower of cost and net realizable value, per unit Number of units in ending inventory Inventory value at lower of cost and NRV Total inventory value at December 31, 2015

Product X Product Y P135.00 P111.60 (13.50) (11.16) P121.50 P100.44 P121.50 P98 2,900 units 1,000 units P352,350 P98,000 352,350+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

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Total P435,000

Chapter 4 - Inventories Purchases Goods available for sale Ending inventory at cost 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)

916,600 P1,216,600 362,500

432,500 P567,500 98,000

Inventory Income Summary

1,349,100 P1,784,100 460,500 P1,323,600 P460,500 450,350 P 10,150 15,000 P 4,850

460,500 460,500

(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)

(b)

Gross profit is 40% based on sales Merchandise inventory, January 1, 2015 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, 2015 Estimated cost of the missing inventory

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

Gross profit is 40% based on cost of sales Merchandise inventory, January 1, 2015 Purchases for the year 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, 2015 Estimated cost of the missing inventory

P 450,000 3,150,000 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, 2015 Cost of goods available for sale Less net purchases for the period (650,000 – 12,000 + 6,000) Estimated cost of June 30, 2015 inventory

4-19.

(Manel’s Company) Merchandise inventory, January 1 Purchases (1,000,000 + 40,000 – 60,000) Cost of goods 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

4-20.

4,850

(Herminia Company)

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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

Chapter 4 - Inventories Inventory, January 1 Purchases P5,000,000 Purchase returns (80,000) Purchase discounts (80,000) Total Estimated cost of goods sold (7,380,000 – 180,000) x 60%) Estimated cost of ending inventory Goods in transit Estimated cost of ending inventory 4-21.

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

(Blazing Red Company)

Inventory, January 1, 2015 Purchases: Payments to suppliers Accounts Payable, 8/28/15 Accounts Payable, 1/1/15 Cost of goods available for sale Estimated cost of goods sold: Collections from customers Accounts Receivable, 8/28/15 Accounts Receivable, 1/1/15 Sales Cost percentage 2,105,880 Estimated cost of ending inventory Less undamaged goods: Goods out on consignment Goods in transit Estimated inventory fire loss 4-23.

4,840,000 P5,040,000 4,320,000 P 720,000 ( 100,000) P 620,000

(Old Rose Company)

Inventory, January 1, 2015 Purchases Freight in Cost of goods available for sale Estimated cost of goods sold (2,200,000 – 50,000) x 70% 1,505,000 Estimated cost of ending inventory Inventory per actual count Shortage in inventory 4-22.

P 200,000

P 575,400 P1,950,000 491,400 ( 352,560) 2,088,840 P2,664,240 P3,015,200 515,560 ( 522,360) P3,008,400 70% P 558,360 P 195,000 69,500

264,500 P 293,860

(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 Cost of goods available for sale Less estimated cost of ending inventory 750,000 Estimated cost of goods sold

33

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

Retail P 750,000 4,000,000 P4,750,000 3,500,000 P1,250,000 60% P 750,000 P2,755,000

P2,005,000

Chapter 4 - Inventories

(b)

4-24.

Average cost basis Inventory, June 30 at retail Cost percentage (2,755,000/4,750,000) Estimated cost of inventory Cost of goods available for sale Less estimated cost of ending inventory 725,000 Estimated cost of goods sold

P1,250,000 58% P 725,000 P2,755,000

P2,030,000

(London Company) Average cost retail Cost Beginning Inventory 145,000 Purchases 283,920 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%)

4-25.

(434,800) 130,800 99,146

(Alemars Drygoods, Inc.) 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

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 4-26.

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

(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

34

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

Chapter 4 - Inventories (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

4-27.

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

(Grand Central, Inc.) Profit reported for 2015 Adjustments: Overstatement of beginning inventory

P658,000

71,000 Understatement of ending inventory Goods still in transit shipped to customers FOB destination recorded as sales (40% x 60,000); related cost was excluded in ending inventory (40% x 52,000), net Purchases of 2014 recorded in 2015

(3,200) 100,000 Correct net income for 2015 4-28.

96,000

P921,800

(USTFU Company) (a) Dec. 31, 2015 Loss on Purchase Commitments Estimated Liability on Purchase Commitments 1,000 x (1,200 – 1,150) Feb. 28, 2016 Purchases Estimated Liability on Purchase Commitments Accounts Payable

50,000 50,000

1,150,000 50,000 1,200,000

(b) Dec. 31, 2015 Loss on Purchase Commitments Estimated Liability on Purchase Commitments

50,000 50,000

Feb. 28, 2016 Purchases Estimated Liability on Purchase Commitments Loss on Purchase Commitments Accounts Payable

50,000 1,200,000

1,100,000 50,000

(c) Dec. 31, 2015 Loss on Purchase Commitments Estimated Liability on Purchase Commitments Feb. 28, 2016 Purchases 1,200,000 Estimated Liability on Purchase Commitments 50,000 Accounts Payable Recovery of Loss on Purchase Commitments

35

50,000 50,000

1,200,000 50,000

Chapter 4 - Inventories

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

B A D B D

MC6 MC7 MC8 MC9 MC10

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

Problems MC22 MC23 MC24 MC25

D C A B

MC26 MC27

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

MC40

C

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 3,000,000 + 300,000 + 660,000 + 230,000) = 4,190,000 450,000÷1.5=300,000; 600,000+60,000=660,000; (300,000÷1.5) +30,000=230,000 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) = 500,000 180,000 + 2.5M – 2.4M = 280,000; 280,000 – 110,000 =170,000 short 2.55M+250,000–300,000=2.5M; 2.8M + 900,000 – 700,000 = 3M Sales; 3M ÷ 1.25 = 2.4M CGS CGS-2013 = 1,040,000; CGS-2014 =1.55M; total CGS (2013/2014) = 2.59M 2013/2014 sales = 1.7M + 2M = 3.7M; 2.59/3.7 = 70% 520,000+ 2.18M – (2.5M x 70%)= 950,000; 950,000–(70%x150,000)– 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 =126,422 126,422 – 69,738 – 5,000 = 51,684 400,000 + 1,280,000 –740,000 = 940,000 DM

36

Chapter 4 - Inventories

MC41

C

MC42

D

MC43 MC44

A C

MC45

D

940,000 + 960,000 + (50%x 906,000) = 2,380,000 TMC;4M x 75% = 3M CGS 3M+1,310,000–1.5M=2,810,000 CGAS; 2,380,000 + 1.1M–2,810,000 = 670,000 617,000 + 1,281,000 – 21,000 + 31,000 = 1,908,000 1,057,000 + 2,158,000 – 35,000 = 3,180,000; 1,908,000 ÷ 3,180,000 = 60% 3,180,000–2,365,000+62,000=877,000; 877,000–780,000=97,000 x 60% = 58,200 47,075+213,327+3,400=263,802; 70,025+306,375=18,900–7,800–10,640 = 376,860 263,802 ÷ 376,860 = 70% x 320,500=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

37