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Final Quiz No. 1 – Inventories

PROBLEM NO. 1: CAIMAN, INC. uses a perpetual inventory system and reports inventory at the lower of FIFO
cost or net realizable value. Caiman’s inventory control account balance at June 30, 2021 was P442,040. A
physical count conducted on that day found inventory on hand worth P440,400. Net realizable value for each
inventory item held for sale exceeded cost. An investigation of the discrepancy disclosed the following:

a. Goods worth P13,200 held on consignment for Bugok Co. had been included in the physical count.

b. Goods costing P2,400 were purchased on credit from Amor Co. on June 27, 2021 on FOB shipping point
terms. The goods were shipped on June 28, 2021 but, as they had not arrived by June 30, 2021, were not
included in the physical count. The purchase invoice was received and processed on June 30, 2021.

c. Goods costing P4,800 were sold on credit to Acero Co. for P7,800 on June 28, 2021 on FOB destination
terms. The goods were still in transit on June 30, 2021. The sales invoice was processed and recorded on
June 29, 2021.

d. Goods costing P5,460 were purchased on credit (FOB destination) from San Miguel Co. on June 28, 2021.
The goods were received on June 29, 2021 and included in the physical count. The purchase invoice was
received on July 2, 2021.

e. On June 30, 2021, Caiman sold goods costing P12,600 on credit (FOB shipping point) terms to Pisaro
Corp. for P19,200. The goods were dispatched from the warehouse on June 30, 2021 but the sales invoice
had not been processed at that date.

f. Damaged inventory items valued at P5,300 were discovered during the physical count. These items were
still recorded on June 30, 2021 but were omitted from the physical count records pending their write-off.

1. What is the adjusted inventory balance on June 30, 2021?

a. P424,800 b. P 421,200 c. P445,000 d. P434,400

2. What adjustment should be made to Caiman’s sales revenue for the year ended June 30, 2021?
a. Net increase of P11,400 c. Increase of P19,200
b. Net decrease of P11,400 d. Decrease by P7,800

3. Caiman’s accounts payable at June 30, 2021, should be

a. Decreased by P5,460 c. Decreased by P5,300
b. Increased by P5,460 d. Increased by P160

4. What is the unlocated difference between the perpetual balance and the physical count on June 30, 2021?
a. P5,300 b. P160 c. P1,640 d. P 0

5. The entry to correct the error described in item no. 2 is

a. Purchases 2,400
Accounts payable 2,400
b. Inventory 2,400
Accounts payable 2,400
c. Inventory 2,400
Cost of sales 2,400
d. No adjusting entry is necessary.

PROBLEM NO. 2: The cost of goods sold section of the income statement prepared by your client for the year
ended December 31 appears as follows:

Inventory, January 1 P 240, 000

Purchases 4, 800, 000
Cost of goods available for sale P5, 040, 000
Inventory, December 31 300,000
Cost of goods sold P4, 740, 000

Although the books have been closed, your working paper trial balance is prepared showing all accounts with
activity during the year. This is the first time your firm has made an examination.

The January 1 and December 31 inventories appearing above were determined by physical count of the goods on
hand on those dates and no reconciling items were considered. All purchases are FOB shipping point.

In the course of your examination of the inventory cutoff, both at the beginning and end of the year, you discovered
the following facts:
Beginning of the Year

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 1. Invoices totaling P75, 000 were entered in the voucher register in January, but the goods were received at
that time, but all entries relating to the sales were made on January 2.
2. December invoices totaling P39, 600 were entered in the voucher register in December, but the goods were
not received until January.

End of the Year

3. Sales of P129, 000 (cost of P38, 700) were made an account on December 31 and the goods delivered at
that time, but all entries relating to the sales were made on January 2.
4. Invoices totaling P45, 000 were entered in the voucher register in January, but the goods were received in
December.
5. December invoices totaling P54, 000 were entered in the voucher register in December, but the goods were
not received until January.
6. Invoices totaling P36, 000 were entered in the voucher register in January, and the goods were received in
January, but the invoices were dated December.

Questions:
6. What working paper entry, if any, should be made at the end of the current year for item no. 1?
7. The working paper adjustment to correct the error described in item no.3 should include a debit to
8. The company’s statement of financial position as of the end of the current year should show inventory of
9. What is the net adjustment to purchases of the current year?
10. The cost of goods sold for the current year is

PROBLEM NO. 2: In your audit of the December 31, 2020 financial statements of Chicken, Inc., you found the
following inventory-related transactions:
a. Goods costing P50,000 are on consignment with a customer. These goods were not included in the
physical count on December 31, 2020.
b. Goods costing P16,500 were delivered to Chicken, Inc. on January 4, 2021. The invoice for these goods
was received and recorded on January 10, 2021. the invoice showed the shipment was made on December
29, 2020, FOB shipping point.
c. Goods costing P21,640 were shipped FOB shipping point on December 31, 2020 and were received by the
customer on January 2, 2021. Although the sale was recorded in 2020, these goods were included in the
2020 ending inventory.
d. Goods costing P8,640 were shipped to a customer on December 31, 2020, FOB destination. These goods
were delivered to the customer on January 5, 2021, and were not included in the inventory. The sale was
properly taken up in 2021.
e. Goods costing P8,600 shipped by a vendor under FOB destination term, were received on January 11,
2021, and thus were not included in the physical inventory. Because the related invoice was received on
December 31, 2020, this shipment was recorded as a purchase in 2020.
f. Goods valued at P51,000 were received from a vendor under consignment term. These goods were
included in the physical count.
g. Chicken, Inc. recorded as a 2020 sale a P64,300 shipment of goods to a customer on December 31, 2020,
FOB destination. This shipment of goods costing P37,500 was received by the customer on January 5,
2021, and was not included in the ending inventory figure.

Prior to any adjustments, Chicken’s ending inventory is valued at P445,000 and the reported net income for the year
is P1,648,000.

11. Chicken’s December 31, 2020 inventory should be increased by

a. P8,000 c. P66,000
b. P40,000 d. P61,640

12. Which of the errors described in “a to g” will not affect the company’s net income for 2020?
a. Item a c. Item e
b. Item g d. Item b

13. What is chicken’s adjusted net income for the year 2020?
a. P1,565,800 c. P1,615,800
b. P1,607,160 d. P1,666,800

14. Purchase cut-off procedures test the cutoff and completeness of assertions. A company should include goods in
its inventory if it
a. has sold the goods c. has physical possession of the goods
b. holds legal title to the goods d. has paid for the goods

PROBLEM NO. 3: On April 21, 2021, a fire damaged the office and warehouse of Muntinlupa Company. The
only accounting record saved was the general ledger, from which the trial balance below was prepared:

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 Muntinlupa Company
Trial Balance
March 31, 2021
Cash P 180,000
Accounts receuvabke 400,000
Inventory, Dec. 31, 2020 750,000
Land 350,000
Building 1,100,000
Accumulated depreciation P 413,000
Other Assets 56,000
Accounts payable 237,000
Accrued expenses 180,000
Common stock, P100 pare 1,000,000
Retained earnings 520,000
Sales 1,350,000
Purchases 520,000
Operating expenses 344,000 _________
Totals P3,700,000 P3,700,000

The following date and information have been gathered:

a. The company’s year-end is December 31.

b. An examination of the April bank statement and cancelled checks revealed that checks written during the
period April 1 to 21 totaled P130,000: P57,000 paid to accounts payable as of March 31; P34,000 for April
merchandise purchases; and P39,000 paid for other expenses. Deposits during the same period amounted
to P129,500, which consisted of receipts on account from customers with the exception of a P9,500 refund
from a vendor for merchandise returned in April.

c. Correspondence with suppliers revealed unrecorded obligations at April 21 of P106,000 for April
merchandise purchases, including P23,000 for shipments in transit on that date.

d. Customers acknowledged indebtedness of P360,000 at April 21, 2021. It was also estimated that customers
owed another P80,000 that will never be acknowledged or recovered. Of the acknowledged indebtedness,
P6,000 will probably be uncollectible.

e. The insurance company agreed that the fire loss claim should be based on the assumption that the overall
gross profit ratio for the past two years was in effect during the current year. The company’s audited
financial statements disclosed the following information:
2020 2019
Net sales P5,300,000 P3,900,000
Net purchases 2,800,000 2,350,000
Beginning inventory 500,000 660,000
Ending inventory 750,000 500,000

f. Inventory with a cost of P70,000 was salvaged and sold for P35,000. The balance of the inventory was a
total loss.

15. How much is the adjusted balance of Accounts Receivable as of April 21, 2021?
a. P400,000 b. P360,000 c. P440,000 d. P354,000

16. How much is the sales for the period January 1 to April 21?
a. P1,430,000 b. P1,510,000 c. P1,519,500 d. P1,506,000

17. How much is the adjusted balance of Accounts Payable as of April 21, 2021:
a. P286,000 b. P237,000 c. P106,000 d. P343,000

18. How much is the net purchases for the period January 1 to April 21, 2021?
a. P650,500 b. P660,000 c. P673,500 d. P683,000

19. How much is the cost of sales for the period January 1 to April 21, 2021?
a. P786,600 b. P830,500 c. P835,725 d. P828,300

20. How much is the estimated inventory on April 21, 2021?

a. P570,000 b. P623,500 c. P587,775 d. P579,500

21. How much is the estimated inventory fire loss?

a. P579,500 b. P535,000 c. P477,000 d. P512,000

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PROBLEM NO. 4: The work in process inventories of Paranaque Company were completely destroyed by fire on
June 1, 2021. You were able to establish physical inventory figures as follows:

January 1, 2021 June 1, 2021

Raw materials P60,000 P120,000
Work in process 200,000 -
Finished goods 280,000 240,000

Sales from January 1 to May 31 were P546,750. Purchases of raw materials were P200,000 and freight on
purchases, P30,000. Direct labor during the period was P160,000. It was agreed with insurance adjusters that an
average gross profit rate of 35% based on cost be used and that direct labor cost was 160% of factory overhead.

22. Raw materials used

a. P290,000 b. P140,000 c. P260,000 d. P170,000

23. The total value of goods placed in process

a. P786,000 b. P600,000 c. P630,000 d. P430,000

24. The value of goods manufactured and completed as of June 1, 2021

a. P365,000 b. P315,388 c. P445,000 d. P420,000

25. The work in process inventory destroyed as computed by the adjuster

a. P314,612 b. P185,000 c. P366,000 d. P265,000

“Here is my secret, a very simple secret,” said the prince. “It is only with the heart that one
can see rightly; what is essential is invisible to the eye.”
- Antoine de Saint-Exupery (The Little Prince)