INVENTORY PROBLEMS

PROBLEM 1
Below is the list of items that may or may not be reported as inventory in a company’s Dec. 31 Statement of
Financial Position:
1. goods out on consignment at another company’s store 800,000
2. goods sold on installment basis 100,000
3. goods purchased FOB shipping point, in transit at Dec. 31 120,000
4. goods purchased FOB destination, in transit Dec. 31 200,000
5. goods sold to another company, for which our company has signed an
agreement to repurchase at a set price that covers all cost related to the inventory 300,000
6. goods sold where large returns are predictable 280,000
7. goods sold FOB shipping point, in transit Dec. 31 120,000
8. freight charges on goods purchased 80,000
9. factory labor costs on goods still unsold 50,000
10. interest cost incurred for inventories that are routinely manufactured 40,000
11. costs incurred to advertise goods held for sale 20,000
12. materials on hand not yeat place into production 350,000
13. office supplies 10,000
14. raw material on which a company started productions , but which
are not completely processed. 280,000
15. factory supplies 20,000
16. goods held on consignment from another company 450,000
17. costs identified with unit completed but not yet sold 260,000
18. goods sold FOB destination, in transit Dec. 31 40,000
19. temporary investments in stocks and bonds that will be resold in near future 500,000
How much of these inventories typically be reported as inventory in the Financial Statements? ______________

PROBLEM 2
In connection with your audit of AA Manufacturing Company, you reviewed its inventory as of Dec. 31, 2020 and
found the ff. items:
1. a packing case containing a product costing 100,000was standing in the shipping room when the physical
inventory was taken. It was not included in the inventory because it was marked “hold for shipping instructions”. The
customer order was dated Dec. 18, but the case was shipped and the customer billed on Jan. 10, 2021.
2. merchandise costing 600,000 was received on Dec. 28, 2020, and the invoice was recorded. The invoice was in
the hands of the purchasing agent, it was marked “on consignment”.
3. merchandise received on Jan. 6, 2021, costing 700,000 was entered on purchase order on Jan. 7. The invoiced
showed shipment was made FOB shipping point on Dec. 31, 2020. Because it was not found during inventory count, it
was not included.
4. a special machine costing 200,000, fabricated to order for a special customer, was finished and in the shipping
room on Dec. 30. The customer was billed for 300,000 on that date and the machine was excluded from the inventory
although it was shipped Jn. 4, 2021.
5. merchandise costing 200,000 was received on Jan. 6, 2021, and the related purchased invoice was recorded
Jan. 5. The invoice show the shipment was made on Dec. 29, 2020 FOB destination.
6. merchandise costing 150,000was sold in an installment basis on Dec. 15. The customer took possession of the
goods on that date. The merchandise was included in inventory because AA still holds legal title. Historical experience
suggests that full payment on installment sale is received approximately 99% of the time.
7. goods costing 500,000were sold and delivered on Dec. 20. The goods were included in the inventory because
the sale was accompanied by purchase agreement requiring AA to buy back the inventory in Feb. 2021.

Based on the above and the result of your audit, how much of these items should be included in the inventory balance
at Dec. 31, 2020? ___________________________________
PROBLEM 3
AA Company is on a calendar year basis. The ff. data were found during your audit:
1. goods in transit shipped FOB destination by a supplier, in the amount of 100,000, had been excluded from the
inventory, and further testing revealed that the purchase had been recorded.

2. goods costing 50,000 had been received, included in the inventory, and recorded as purchase. However, upon your
inspection, the goods were found to be defective and would be immediately return.

3. materials costing 250,000 and billed on Dec. 30 at a selling price of 320,000, had been segregated in the warehouse
for shipment to customer. The materials had been excluded from inventory as a signed purchase order had been
received from a customer. Terms, FOB destination.

4. goods costing 70,000 was out on consignment with HH Company. Since monthly statement from HH listed those
materials as on hand, the items had been excluded from the final inventory and invoiced on Dec. 31 at 80,000

5. the sale of 150,000 worth of materials and costing 120,000had been shipped FOB point of shipment on Dec. 31.
However, this inventory was found to be included in final inventory. The sale was properly recorded in 2020.

6. goods costing 100,000and selling for 140,000had been segregated, but not shipped on Dec. 31., and were not
included in the inventory. A review of the customer’s purchase order set forth terms as FOB destination. The sale had
not been recorded.

7. you client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as yet. However,
these materials costing 170,000 had been included from the inventory count, but no entry had been made for their
purchase.

8. merchandise costing 200,000 had been recorded as a purchase but not included as inventory. Terms of sale are FOB
shipping point according to supplier’s invoice which had arrived at Dec. 31.

Further inspection of the client’s records revealed the ff. Dec. 31, 2020 balances: inventory 1,100,000; AR
580,000; AP 690,000; net sales 5,050,000; net purchases 2,300,000; and net income 510,000.

Based on the above and the result of your audit, determine the adjusted balances of the ff. as Dec. 31, 2020:
Inventory ________________
AP ______________________
Net Sales ____________________
Net Purchases ________________
Net Income _______________________