Inventories: 

Problem #3, page 415 - 423

Problem 3: EXERCISES
1. Joca Co. 2. Worried Co.
(a) FOB Shipping point, Freight collect Perpetual Inventory System
Dec. 31, 20x1 Purchases 100,000 a. Inventory
Accounts payable 100,000 Accounts Payable
Jan. 2 20x2 Freight-In 10,000 Freight In
Cash 10,000
Jan. 5 20x2 Accounts Payable 100,000 b. Accounts Payable
Cash 100,000 Inventory
(b) FOB destination, Freight prepaid c. Accounts Receivale
Dec. 31, 20x1 No entry Sales
Cost of goods sold
Jan. 2 20x2 Purchases 100,000 Inventory
Accounts payable 100,000 d. Sales returns
Jan. 5 20x2 Accounts Payable 100,000 Accounts receivale
Cash 100,000 Inventory
(c) FOB Shipping point, Freight prepaid Cost of goods sold
Dec. 31, 20x1 Purchases 100,000
Freight-In 10,000 5. Using T Account
Accounts Payable 110,000 Inventory beg
Jan. 2 20x2 No entry a. 10,000
b. 36,000
Jan. 5 20x2 Accounts Payable 110,000 c. 15,000
Cash 110,000 d. 25,200
(d) FOB destination, Freight collect
Dec. 31, 20x1 No entry Solution:
Jan. 2 20x2 Purchases 100,000 a.
Accounts Payable 90,000 Inventory beg -
Cash 10,000 Net purchases -
Jan. 5 20x2 Accounts Payable 90,000
Cash 90,000
b.
Inventory beg -
Net purchases -

c.
Inventory beg -
Net purchases -

d.
Inventory beg -
Net purchases -
erpetual Inventory System Periodic Inventory System
54,000 Purchases 50,000
50,000 Freight In 4,000
4,000 Accounts payable 50,000
cash 4,000
5,000 Accounts Payable 5,000
5,000 Purchases Returns 5,000
90,000 Accounts Receivable 90,000
90,000 Sales 90,000
30,000
30,000
6,000 Sales returns 6,000
nts receivale 6,000 Accounts receivable 6,000
2,000
2,000

Net purchases Cost of Sales Inventory End

198,000 112,000 96,000
145,000 125,000 56,000
58,000 64,000 9,000
112,000 89,200 48,000

Inventory
10,000
198,000 112,000 Cost of Sales
96,000 Inventory End

Inventory
36,000
145,000 125,000 Cost of Sales
56,000 Inventory End

Inventory
15,000
58,000 64,000 Cost of Sales
9,000 Inventory End

Inventory
25,200
112,000 89,200 Cost of Sales
48,000 Inventory End
3
Effect of error on
Nature of Error Gross Profit COGS
a. Overstatement of begging inventory Understatemnent Overstatement
b. Understatement of purchases Overstatement Understatemnent
c. Overstatement of purchase returns Overstatement Understatemnent
d. Understatement of purchase returns Understatemnent Overstatement
e. Overstatement of ending inventory Overstatement Understatemnent
f. Understatement of ending Inventory Understatemnent Overstatement
4. Horizon Co.
Gross Method Net Method
Purchase of Inventory
Purchases 90,000 Purchases 88,200
Accounts Payable 90,000 Accounts Payable 88,200
i. The account was paid beyondthe discount period
Accounts Payable 90,000 Accounts Payable 88,200
Purchase discount 1,800 Cash 88,200
Cash 88,200
ii. The account was paid within the discount period
Accounts payable 90,000 Accounts payable 88,200
Cash 90,000 Purchase discount 1,800
Cash 90,000
Problem 4: Multiple choice Computational
Solutions:
1. B. 276,000
Unadjusted bal. (dec. 31, x1) 260,000
(a) 11,000
(b) 5,000
© (16,000)
(d) 20,000
(e) (4,000)
Correct Inventory 276,000

2. C. 75000
Unadjusted Bal 75,000
Included. FOB shipping point (June 30,2002 1,500
Excluded.FOB Destination(July 3, 2002) 2,500
Inventory june 30, 2002 75,000
*No necessary journal entry are needed

3. D. 512,000
Ware house Goods held by consignees
Begging Inventory 110,000 12,000
Purchases 480,000 60,000
Freight in 10,000
Transporation to consignees 5,000
TGAS 600,000 77,000
Ending Inventory (145,000) (20,000)
Cost of goods sold 455,000 57,000

4. D. 43,000
Mark up unsold consigned goods(40k x40%) 16,000
Goods held on consignement by opal 27,000
Total reduction in inventory 43,000

5. C 178,000;178.400
Net method (80k +100k) x 98%) 178,000
Gross Method(80k*98%)+100k 178,400

6. C. 372,400;380,000
Inventory (380k*98%) 372,400
Accounts Payable(372,400+7600) 380,000
Initial recognition on Dec. 15, 20x1
Purchases 372,400
Accounts payable 372,400
Adjusting Entry on Dec. 31, 20x1
Purchases discount loss (389k*2%) 7,600
Accounts payable 7,600

7. A 19,600;176,400
EI(200,000 x98% x 10%) 19,600
COGS(200,000x98%x90%) 176,400
utational
8. C (20,000;176,800;19,680;177,120)
I. Discount is allocated only to the goods sold:
Gross amounts Allocation of discounts
EI (200kx10%) 20,000
COGS (200k*90%) 180,000 3,200
Total 200,000 3,200
II. Discount is allocated to both EI and COGS
Gross amounts Allocation of discounts
EI (200kx10%) 20,000 320
COGS (200k*90%) 180,000 2,880
Total 200,000 3,200

9. D. (31,500;51,100,31,500;51,100)
FIFO periodic
Ending Inventory in units = 1,400-400+800-900+700-600=1,000units
In units Unit Cost
Ending Inventory 1,000
Total Allocation to june 24 purchases (700) 30
Excess allocated to june 14 purchases 300 35
Ending Inventory in pesos
Total TGAS, in pesos
Date Transaction Quantity
1-Jun Balance forwarded 1,400
14-Jun Purchases 800
512,000 24-Jun Purchases 700
Total TGAS, in pesos
TGAS, in pesos 82,600
Ending Inventory (31,500)
Cost of goods sold 51,100

FIFO perpetual
In units Unit Cost
Balance 1,400 24
Sale 400 24
Purchases 800 35
Sale 900 24
Purchases 700 30
Sale 600
100 from june 1 24
500 from june 14 35
Ending Inventory
Cost of Goods sold(9,600+21,600+2,400+17,500)

10. A. (28,480;54,120;26,880;55,720)
Weighted average periodic
Weighted ave. Unit Cost = TGAS, in pesos/Tgas, in units

TGAS, in units = 1,400+800+700 = 2,900 units

Weighted Ave. Unit Cost = 82,600/2,900

Weighted Ave. Unit Cost = 28.48

Ending Inventory =1,000 x 28.48 28,480

TGAS in pesos 82,600

Ending inventory in pesos (28,480)
Cost of goods sold 54,120

Weighted average perpetual

Date Transaction Quantity
1-Jun Balance forwarded 1,400
8-Jun Sale (400)
14-Jun Purchase 800
Totals 1,800
18-Jun Sale (900)
24-Jun Purchase 700
Totals 1,600
29-Jun Sale (600)
Ending Inventory 1,000

Cost of goods sold (9,600+26,001+17,622) 53,223

 11. C. (152,960;274,800;152,960;274,800)
FIFO periodic
Net Amounts Beginning inventory in units 2,000
20,000 Net purchases in units 9,400
176,800 Total good available for sale in units 11,400

Total good available for sale in units 11,400

Net Amounts Quantity of goods sold (7,400)
19,680 Ending Inventory in units 4,000
177,120
Units
Ending Inventory 4,000
Allocated as follows:
From Nov. 29 net purchases (1,600)
Balance to be allocated to the next month 2,400
In pesos From Nov. 2 purchases (2,400)
Ending Inventory at cost
21,000
10,500 TGAS in pesos
31,500 Date Transaction
1-Nov Inventory
Unit Cost In pesos 7-Nov Purchases
24 33,600 15-Nov Purchases
35 28,000 29-Nov Purchases
30 21,000 30-Nov Purchases
82,600 Total goods available for sale

Total goods available for sale in pesos 427,760

Ending inventory at cost (152,960)
Cost of goods sold 274,800

In pesos 12. A.(150,080;277,680;152,270;275,490)

33,600 Weighted average periodic
(9,600)
28,000 TGAS, in units 11,400
(21,600)
21,000 Weighted Ave. Unit Cost = 427,760/11,400 37.52
0 Weighted Ave. Unit Cost = 37.52
(2,400)
(17,500) Ending Inventory =4,000 x 37.52 150,080
31,500
51,500 TGAS in pesos 427,760
Ending inventory in pesos (150,080)
Cost of goods sold 277,680

Weighted average perpetual

Date Transaction
1-Nov Inventory
7-Nov Purchase
Totals
12-Nov Sale
15-Nov Purchase
Totals
16-Nov Sales returns
Totals
22-Nov Sales
29-Nov Purchase
30-Nov Purchase returns
Ending invemtory in units and at cost
Unit Cost In pesos
24 33,600 Cost of goods sold 275,490
24 (9,600)
35 28,000 13. C 175,000
28.89 52,000 TGAS in peso(195,000+45,000) 240,000
(26,001) FIFO Ending Inv. (65,000)
30 21,000 FIFO Cost of goods sold 175,000
29.37 46,999
(17,622)
29,377
 14. A. 157,600
Invoice price inclusive of VAT 112,000
VAT (12,000)
Shipping Cost 40,000
Transit Insurance 12,000
Commision to broker 5,600
Cost of Invemtory 157,600

15. C. 430,000
Sales 1,000,000
Sales discount (50,000)
Unit Cost Total cost Sales returns (10,000)
Net sales 940,000
Cost of goods sold:
38.60 61,760 Beg inv. 60,000
Purchases 500,000
38 91,200 Purchases returns (25,000)
152,960 Purchases discount (10,000)
Freight In 60,000
TGAS 585,000
Units Unit Cost Total Cost Ending Inv. (75,000) (510,000)
2,000 36 72,000 Gross Profit 430,000
3,000 37.20 111,600
4,800 38 182,400 16. C. 504,900
1,900 38.60 73,340 X Y
(300) 38.60 (11,580) Cost (50+5);(30+4);(109+68) 55 34
427,760 NRV(56-4);(60-8);(250-75) 52 52
Lower 52 34
No. of units 3,700 2,500
Total 192,400 85,000

17. D. 0

18. B. 30,000
Recovery 20x2 40,000 = (490,000-450,000)
Reversal of inventory wite down 30,000 = (440,000-410,000)

19. B. 60,000;585,000
Inventory
beg. 60,000
Net. Purchase 465,000
Freight In(squeeze) 60,000 510,000
 75,000

TGAS 510,000
Ending Inventory 75,000
Cost of goods available for sale 585,000
Quantity Unit Cost In pesos
2,000 36 72,000 20. A. 25,000;75,000
3,000 37.20 111,600 Inventory
5,000 36.72 183,600 beg. 60,000 25,000
(4,200) (154,224) Purchases 500,000 10,000
4,800 38 182,400 Freight In 60,000 510,000
5,600 37.82 211,776 75,000
600 36.72 22,032
6,200 37.71 233,808
(3,800) 37.71 (143,298)
1,900 38.60 73,340
(300) 38.60 (11,580)
152,270
 Z Total
177
175
175
1,300
227,500 504,900

(440,000-410,000)

COGS
Ending Inv.

Purchase returns
Purchase discounts
COGS
End (585K TGAS - 510K COGS)
Inventory Estimation:  Problem #3 - page 450 - 455

Problem 3: Multiple choice Computational

1. D. 89,000;66,400
GPR based on sales
Inventory
Inventory beg. 80,000
Net purchases 348,000 339,000 COGS(454k-2k) x 75%
89,000 end.
GPR based on cost
Inventory
Inventory beg. 80,000
Net purchases 348,000 361,600 COGS(454k-2k) x 100%/125%
66,400 end.

2. D. 56,400
Inventory
Inventory beg. 162,000
Net purchases 3,412,000 3,018,600 COGS(4,654,000-10,000) x 65%
555,400 end.
(56,000) Goods in transit
(443,000) Actual Inventory
56,400 Lost due to theft

3. D. 124,920
2001
Net sales(788,000-16,000) 772,000
Cost of sales:
Inventory, january 1 -
Purchases 860,000
Purchase returns & Allowances (46,120)
Inventory, end (173,120) (640,760)
Gross profit 2001 131,240

GPR on sales 2001(131,240/772K) 17%

add: 3%
GPR on sales 2002 20%

Inventory 2002
Inventory beg. 173,120
Net purchases 627,400 652,800 COGS
147,720 end.

Ending Inventory 2002 147,720

Less: Cost of undamaged goods (19,200)
Less: Salvage value (3,600)
Inventory loss 124,920

4. A. 120,000
Accounts Payable
- beg.
Payment to suppliers 80,000 90,000 Net purchases
end. 10,000

Inventory
beg. 30,000
Net purchases 90,000 120,000 COGS
- end.
5. A. 29,000
Accounts Payable
29,000 beg.
Payment to suppliers 20,000 43,500 Gross purchases
Purchases returns 2,500
Purchase discounts 5,000
end 45,000

Raw materials
beg. 5,000
Gross purchases 43,500 2,500 Purchases returns
Freight In 1,000 5,000 Purchase discounts
36,000 RM issued to production
6,000 end

Work in process
beg. 20,000
RM issued to production 36,000 51,000 COGM
Direct labor 16,000
Factory overhead 6,000
27,000 end

Finished goods
beg. 23,000
COGM 51,000 45,000 COGS
29,000 end

6. B. 260,500
Raw materials
beg. 11,000
Purchases 150,000 146,000 DM
15,000 end

Work in process
beg. 20,000
Direct materials 146,000
Direct labor 60,000
Factory overhead:
Indirect factorylabor 30,000
Taxes & depr. On factory-bldg 10,000
Utilities 15,000
257,000 COGM
 24,000 end

Finished goods
beg. 12,500
COGM 257,000 260,500 COGS
9,000 end
7. D. 283,329.30;284,698.80
Cost Retail
Inventory at jan. 1, 2002 45,000 75,000
Purchases 270,000 590,000
Freight In 6,750
Markups 50,000
Markdowns (20,000)
TGAS 321,750 695,000
Net sales (612,000)
Ending inventory in retail 83,000

Cost ratio 46.29%

Ending inventory(83k*46.29%) 283,329.30

FIFO cost method

Cost ratio(FIFO cost method) 44.64%
Ending Inventory(83k*44.64%) 37,051.20
CGOS 284,698.80

8. C. 49,126;64,474
Cost Retail
Purchases 110,600 160,600
Freight in 4,000
Purchase discounts (1,000)
Purchase returns (10,400) (17,200)
Nets purchases 103,200 143,400

Sales 87,600
Sales returns (5,000)
Employee discount 1,000
Normal spoilage 400
Nets sales 84,000

Cost Retail
Inventory, January 1 20,000 28,000
Net Purchases 103,200 143,400
Departmental transfers-In 2,000 3,000
Departmental transfers-out (1,600) (2,400)
Net markups 8,000
Net Markdowns (18,000)
Abnormal spoilage (10,000) (14,000)
Total goods for sale 113,600 148,000
Net Sales (84,000)
Ending inventory at retail 64,000

Average cost ratio 76.76%

Ending Inventory at retail 64,000
Ending inventory at cost 49,126

Total goods for sale at cost 113,600

Ending inventory at cost (49,126)
Cost of goods sold 64,474
9. A 49,920;63,680

FIFO cost ratio (113,600-20,000)/148,000-28,000) 78%

Ending Inventory retail 64,000

Multiply: 78%
Ending Inventory at cost 49,920

Total goods for sale at cost 113,600

Ending inventory at cost (49,920)
Cost of goods sold 63,680

10. A. 54,600
Cost Retail
Inventory, beg 36,000
Purchases 320,000
Freight in 18,000
Purchase discounts (3,000)
TGAS at sales price 371,000 530,000

Sales 454,000
sales returns (2,000)
Ending inventory at sales price 78,000
TGAS at sales price 530,000

Cost ratio 70%

Ending inventory at sales price 78,000

Multiply 70%
Ending Inventory at Cost 54,600