Chapter 4 - Inventories

CHAPTER 4
INVENTORIES
PROBLEMS
4-1

4-2

4.3

(Crossings Company)
Invoice price (150,000 x 0.80)
Freight charge
Total cost of merchandise purchase
(Orient Trading)
Reported inventory
Goods held on consignment
Mark up on goods out on consignment
Sales price
Cost (600,000 1.5)
Correct inventory

P 120,000
2,500
P 122,500
P 9,500,000
( 500,000)
600,000
400,000

(Tintin Company)
Physical inventory at December 31, 2009
Merchandise in transit shipped FOB shipping point
Merchandise sold FOB destination still in transit
Correct inventory at December 31, 2009

( 200,000)
P 8,800,000
P 172,000

31,500
12,500
P 216,000

4-4

(Jane, Inc.)
Reported units on April 30, 2009
10,200
Adjustments:
No. 2 item Purchased FOB destination
still in transit but included in purchases
( 300)
No. 4 item Sold FOB destination still in transit but taken
as sale and excluded in inventory
500
Correct inventory quantity
10,400

4.5

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

4.6

(Mega Company)
Cost of Ending

23

P 562,500
110,000
27,000
( 85,000)
26,000
P 677,500

37,000

Chapter 4 - Inventories
Inventory
FIFO
Weighted
average
Moving average

Gross Profit

3,561.25
3,388.55

Cost of Goods
Sold
4,495.00
4,667.70

3,426.45

4,629.80

1,795.20

1,930.00
1,757.30

FIFO
Cost of ending inventory:
275 x 11.75
3,231.25
30 x 11.00
330.00

3,561.25

Cost of goods sold:

Cost of goods available for sale
8,056.25
Less ending inventory
3,561.25
Gross profit:
Sales
6,425.00
Less cost of goods sold
4,495.00

4,495.00

1,930.00

Weighted average
Cost of ending inventory:
Cost of goods available for sale
8,056.25
Number of units available for sale
725
Weighted average cost per unit
11.11
Units in ending inventory
305

Cost of goods sold:

Cost of goods available for sale
8,056.25
Less ending inventory
3,388.55
Gross profit:
Sales
Less cost of goods sold
4,667.70

3,388.55

4,667.70

6,425.00
1,757.30

Moving average
Cost of ending inventory:
Inventory, January
250 x 10.50 = 2,625.00
1
Purchase, March 7
200 x 11.00 = 2,200.00
Total
450 x 10.72 = 4,825.00
Sale, May 20
(120 x 10.72 = 1,286.40)
Sale, June 30
( 55 x 10.72 = 589.60)
Balance
275 x 10.72 = 2,949.00
Purchase, July 15
275 x 11.75 = 3,231.25

24

Chapter 4 - Inventories
Total
Sale, September 17
Balance

550 x 11.24 = 6,180.25

(245 x 11.24 = 2,753.80)
305 x 11.24 =

Cost of goods sold:

Cost of goods available for sale
8,056.25
Less ending inventory
3,426.45

4.7

8,100

Gross profit:
Sales
Less cost of goods sold
4,629.80
(Landmark Enterprises)
a.
Cost of ending inventory
1/1
2,400 @ 10.75
1/5
1,900 @ 11.35
4,300 @ 11.02
1/8
2,200 @ 11.02
2,100 @ 11.01
1/24 3,800 @ 11.80
5,900 @ 11.52
1/30 3,600 @ 11.52
2,300 @ 11.52

4,629.80

6,425.00
1,795.20

25,800
21,565
47,365
24,244
23,121
44,840
67,961
41,472
26,489

b.
Cost of goods available for sale (25,800 + 21,565 + 44,840)
P92,205
Number of units available for sale (2,400 + 1,900 + 3,800)

11,38
2,300

Weighted average cost per unit

Number of units in ending inventory

Cost of ending inventory

4-8

3,426.45

P26,174

(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
P 400,000
2,400,000
P2,800,000

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

Cost of goods available for sale

P2,800,000
Less estimated cost of ending inventory
750,000
Estimated cost of goods sold
P2,050,000
b.

Average cost basis

Inventory, June 30 at retail

25

P1,250,000

Chapter 4 - Inventories
Cost percentage
(2,800,000/4,750,000)
Estimated cost of inventory

58.95%
P 736,875

Cost of goods available for sale

P2,800,000
Less estimated cost of ending inventory
736,875
Estimated cost of goods sold
P2,063,125
4-9

7.25
4.10

(Rockwell Club, Inc.)

Amount
Cost of sales:
Sales (160,500 x 12)
1,926,000
P1,187,400
Less gross profit
738,600
Add ending inventory
42,000 x 7.40
310,800
332,400
3,000 x 7.20
21,600
Available for sale
P1,519,800
Deduct purchases
1,150,050
Inventory, January 1
P 369,750
Average cost per unit (369,750 51,000 units)

(DEC Company)
Merchandise inventory, January 1, 2009
450,000
Purchases for the year
3,150,000
Cost of goods available for sale
P3,600,000
Less estimated cost of goods sold (4,000,000 x 70%)
2,800,000
Estimated cost of ending inventory
Physical inventory on December 31, 2009
Estimated cost of the missing inventory
50,000

Units
160,500

45,000
205,500
154,500
51,000
P
P

P 800,000
750,000
P

4-11
Estimated cost of goods sold (705,000 18,000)/ 1.20
P572,500
Add Inventory at July 20, 2009
205,000
Cost of goods available for sale
P777,500
Less net purchases for the period (650,000 12,000 + 6,000)
644,000
Estimated cost of June 30, 2009 inventory
4-12

(Manels Company)

26

P133,500

Chapter 4 - Inventories
Merchandise inventory, January 1
Purchases (1,000,000 + 40,000 60,000)
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
(Old Rose Company)
Inventory, January 1, 2009
Purchases
Freight in
Cost of goods available for sale
P1,820,000
Estimated cost of goods sold (2,200,000 50,000) x 70%
Estimated cost of ending inventory
Inventory per actual count
Shortage in inventory
155,000

P2,000,000
980,000
P2,980,000
2,240,000
P 740,000
280,000
P 460,000

4-13

4-14

4.15

(Blazing Red Company)

Inventory, January 1, 2009
Purchases:
Payments to suppliers
Accounts Payable, 8/28/07
Accounts Payable, 1/1/06
Cost of goods available for sale
P2,664,240
Estimated cost of goods sold:
Collections from customers
Accounts Receivable, 8/28/07
Accounts Receivable, 1/1/07
Sales
Cost percentage
Estimated cost of ending inventory
Less undamaged goods:
Goods out on consignment
Goods in transit
Estimated inventory fire loss
(London Company
Beginning Inventory
Purchases
Markups
Markdowns
Total
Sales Revenue
Ending Inventory, at retail
Cost to retail ratio:
160,000
220,000+20,00040,000
Ending Inventory, at estimated cost

27

P1,000,000
800,000
20,000
1,505,000
P 315,000
160,000
P

P 575,400
P1,950,000
491,400
( 352,560)
2,088,840

P3,015,200
515,560
( 522,360)
P3,008,400
70%
2,105,880
P 558,360
P 195,000
69,500
264,500
P 293,860
Retail
P 60,000
220,000
20,000
(40,000)
P260,000
(80,000)
P80,000
80%
P64,000

Chapter 4 - Inventories
4-16

(Alemars Drygoods, Inc.)

Retail
P1,050,00
0
735,000
80,000
( 15,000)
(105,000)
P1,745,00
0
(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, 2009
Inventory shortage at retail value
4-17

(Uniwide Sales)
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 cost

4-18

Cost
P184,000
339,380
( 11,000)
9,000
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

(City Company)
Cost (under FIFO basis)
P26,000
Net realizable value (40,000 12,000)
P28,000
Lower of cost and net realizable value
P26,000

4-19

(Purple Company)
Cost
Net realizable value (204,000 10,000)
194,000
Loss
4-20 (Powder Blue Company)
Inventory, January 1
Purchases during the year
Cost of goods available for sale
P8,000,000
Less Inventory, December 31
1,200,000
Cost of goods sold

28

P200,000
6,000
P1,400,000
6,600,000

P6,800,000

Chapter 4 - Inventories
4-21

(Rustans Trading)
Product
Cost
A
102
B
45
C
24
D
9
Total

4-22

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

(Sta. Lucia Company)

Reported net income under average
method
Difference in inventory using FIFO
Beginning inventory
Ending inventory

96,000

40,00
0
P3,640,00
0

Net income under FIFO basis

4-23

2005
P3,600,00
0
(

2008
P5,000,00
0

2009
P7,000,000

40,000
)
120,000

(120,000)

P5,080,00
0

P7,530,000

650,000

(Grand Central, Inc.)

Net income reported for 2009
P658,000
Adjustments:
Overstatement of beginning inventory
Understatement of ending inventory

71,000

Cash advance for future manufacture and delivery of goods

credited to sales revenue
(60,000)
Correct net income for 2009
P765,000

MULTIPLE CHOICE QUESTIONS

Theory
MC1 d

MC6

MC2

MC7

MC1
1
MC1

29

a
c

MC1
6
MC1

d
c

Chapter 4 - Inventories

MC3

MC8

MC4

MC9

MC5

MC1
0

2
MC1
3
MC1
4
MC1
5

a
d
d

7
MC1
8
MC1
9
MC2
0

d
d
a

MULTIPLE CHOICE QUESTIONS

Problems
MC21
d
MC22
d
MC23
b
MC24
a
MC25
b

MC26
MC27
MC28

a
a
b

MC29
MC30

c
c

MC31

MC32
MC33

c
c

MC34
MC35

b
c

MC36

MC37

90,000 x .80 x ..90 = 64,800; 64,800 + 5,000 = 69,800

1,500,000 + 50,000 = 1,550,000
150,000 x .85 x .90 x .95 = 109,012.50
109,012.50 x .98 = 106,832.25
(b) 450,000 1.5 = 300,000; (d) 600,000 + 60,000 = 660,000
(e)
300,000 1.5 = 200,000 + 30,000 = 230,000
3,000,000 + 300,000 + 660,000 + 230,000) = 4,190,000
5,000,000 + 80,000 + 800,000 25,000 = 5,855,000
77,500 + 6,000 = 83,500
3,280,000 + 900,000 80,000 = 4,100,000 x 3% =123,000; 123,000
27,000=96,000
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 Cost of goods sold
214,000 152,000 = 62,000
(1,600 x 8) + (4,800 x 9.60) = 58,880; 58,880 6,400 = 9.20
400,000 + 1,280,000 740,000 = 940,000 Direct materials used
940,000 + 960,000 + (50%x 906,000) = 2,380,000 Total mfg. Cost
4,000,000 x 75% = 3,000,000 Cost of goods sold
3,000,000 + 1,310,000 1,500,000 = 2,810,000 Cost of goods avail for
sale
2,380,000 + 1,100,000 2,810,000 = 670,000
600,000 + 1,500,000 (2,240,000 1.4) = 500,000
2,550,000 + 250,000 300,000 = 2,500,000 Purchases
2,800,000 + 900,000 700,000 = 3,000,000 Sales
3,000,000 1.25 = 2,400,000 Cost of goods sold
180,000 + 2,500,000 2,400,000 = 280,000; 280,000 110,000
=170,000 shortage
1,040,000 + 1,550,000 = 2,590,000; 1,700,000 + 2,000,000 =
3,700,000
2,590,000 3,700,000 = 70%
520,000 + 2,180,000 (2,500,000 x 70%) = 950,000
950,000 (70% x 150,000) 95,000 = 750,000
617,000 + 1,281,000 21,000 + 31,000 = 1,908,000 Avail for sale at
cost
1,057,000 + 2,158,000 35,000 = 3,180,000 Avail for sale at retail
1,908,000 3,180,000 = 60% Cost to retail ratio
3,180,000 2,365,000 + 62,000 = 877,000; 877,000 780,000 = 97,000
97,000 x 60% = 58,200

30

Chapter 4 - Inventories

MC38

MC39

MC40

MC41
MC42

a
b

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
47,075 + 213,327 + 3,400 = 263,802 Avail for sale at cost
70,025 + 306,375 = 18,900 7,800 10,640 = 376,860 Avail for sale at
retail
263,802 376,860 = 70%; 320,500 x 70% = 224,350
376,860 320,500 = 56,360; 56,360 39,390 = 16,970; 16,970 x 70%
= 11,879
Repeated problem. Please see Problem 4-15.
Confidence: cost 22; NRV = 30 3 = 27; lower is 22
Positive attitude: cost 55; NRV = 80 28 = 52; lower is 52

31