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
13,500
Cost of Sales Accounts Payable
4,200
Inventories Accounts Payable 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 4,200 22,200
85,000
Accounts Receivable
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
13,500
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
Inventory (12,700 /125%) Cost of Sales / Income Summary Sales
8,120
10,160 10,160 19,270
Accounts Receivable
Inventory (19,270/125%) Cost of Sales
19,270
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 Initial amounts Adjustments: a. b. c. d. e. f. g. h. Net adjustment Corrected balances a.
Inventory 2,400,000
Accts Payable 800,000
65,000 50,000 32,000 61,000 27,000
65,000
(60,000)
c.
Inventory
60,000 65,000
Accounts Payable
50,000
Sales Returns and Allowances Accounts Receivable
45,000
Inventory
32,000
45,000
Cost of Sales e.
32,000
Inventory
61,000 Cost of Sales
f.
61,000
Inventory
27,000 Cost of Sales
g. h.
65,000
50,000 Cost of Sales
d.
56,000 8,000 129,000 P929,000
60,000 Accounts Receivable
Inventory
(45,000)
4,000 239,000 P2,639,000
Sales
b.
Net Sales 10,150,000
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
Inventory
39,000 24,000
Cost of Sales
Inventory
24,000
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
P 660,000 5,150,000 P5,810,000 750,000 P5,060,000
Sales – 2011 and 2012 (5,300,000 + 3,900,000) Less: Cost of goods sold Gross Profit
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 Add: Purchases January 1 to April 15, 2013 January 1 to March 31 April 1 to 15 Paid Unpaid Purchase returns Total goods available for sale Less; Cost of goods sold, January 1 to April 15 Accounts Receivable, April 15 Write off Collections (129,500 – 9,500) Accounts Receivable, March 31 Sales, April 1 to 15 Sales, January 1 to March 31 Sales, January 1 to April 15 Cost ratio (100% - 45% ) Inventory, April 15, before the fire Less: undamaged goods (in transit) Proceeds from sale of damaged goods (lower than cost) Inventory fire loss
P 750,000 P 520,000 34,000 106,000 ( 9,500) P 360,000 80,000 120,000 ( 400,000) P 160,000 1,350,000 P1,510,000 55% P 23,000 30,000
650,500 P1,400,500
830,500 P 570,000 53,000 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
50,000 33,333
Other Operating Expenses – Loss from Inventory Contamination Cost of Sales
800,000
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 P3,400,000 ( 168,000) ( 75,000) P3,157,000 ( 72,000) P3,085,000 5% P 154,250 ( 2,000) P 152,250
55
152,250
Chapter 5 Inventories and Related Expenses (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) (12) (13) (14) (15) (16) (17) (18) (19)
Petty Cash Fund = Cash on deposits with Asian Bank = 400,000 – 68,000 Cash on deposits with Security Bank = 350,000 – 50,000 Cash on deposits with Banco de Oro = (12,000) + 32,000 Cash on deposits with BPI = 200,000 – 200 Cash on deposits with PNB Total Cash in Bank – Current Assets = 332,000 + 300,000 + 20,000 + 199,800 = Accounts Receivable Allowance for Uncollectible Accounts Uncollectible Accounts Expense = 80,000 + 152,250 Finished Goods Inventory = 600,000 + 60,000 Work in Process Inventory = 1,000,000 – 80,000 Raw Materials Inventory = Inventory of Spoiled Goods and Scrap Materials = 80,000 + 42,000 + 55,000 Sales = 6.000,000 – 75,000 Cost of Sales = 4,200,000 – 60,000 + 38,000 – 55,000 Selling and Administrative Expenses = 500,000 + 16,000 + 200 + 152,250 Other Operating Income 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
25,000
(210,000)
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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