Inventories

I. A portion of the Patrick Company's statement of financial position appears as follows:

12/31/2014 12/31/2013
Assets
Cash P353,300 P100,000
Notes Receivable 0 25,000
Inventory ? 199,875
Liabilities
Accounts payable ? 75,000

Patrick Company pays for its operating expenses with cash and purchases all inventories on
credit. During 2014, cash totaling P474,700 was paid on accounts payable. Operating expenses
for 2014 totaled P220,000. All sales are cash sales, The inventory was restocked by purchasing
1,500 units per month and valued by using periodic FIFO. The unit cost of purchases was
P32.60 during January 2014 and increased P0.10 per month during the year, Patrick sells only
one product. All sales are made for P50 per unit. The ending inventory for 2013 was valued at
P32.50 per unit.

How many units were sold during 2014?

What should be the balance of Accounts Payable at December 31, 2014?
The number of units in the January 1, 2014 inventory is?
The number of unit and total cost of ending inventory, respectively, are?

II. Tower Corporation a company engaged in and wholesale business, for the fiscal year ended
June 30, 2012, you determined that its internal control system was good. Accordingly, you
observed the physical inventory at an interim date, May 3 2012 instead of at June 30, 2012.

You obtained the following information from the company's general ledger:
Sales for eleven months ended May 31, 2012 P 672,000
Sales for the fiscal year ended June 30, 2012 768.000
 Purchases for eleven months ended May 31, 2012
(before audit adjustments) 540,000
Purchases for the fiscal year ended June 30, 2012 640,000
Inventory, July 1, 2011 70,000
Physical inventory, May 31, 2012 110,000

Your audit disclosed the following additional information:

Shipments costing P6,000 were received in May and included in the physical inventory but
recorded as June purchases.
1. Deposit of P2,000 made with vendor and charged to purchases in April, 2012.
Product was shipped in July, 2012.
2. A shipment in June was damaged through the carelessness of the receiving
department. This shipment was later sold in June at its cost of P8,000.
In audit engagements in which interim physical inventories are observed, a frequently used
auditing procedure is to test the reasonableness of the year-end inventory by the application of
gross profit ratios.

The gross profit ratio for eleven months ended May 31, 2012 is?
The cost of goods sold during the month of June, 2012 using the gross profit method?
The June 30, 2012 inventory using the gross profit method is?

III. While examining the December 31, 2013 financial statements of Google Company, the
following errors were discovered.

Ending inventory was overstated by P10,000. Beginning inventory was understated by P4,000
P100,000 worth of merchandise was purchased and received towards the end of 2013 and
included in inventory. The purchase was recorded in 2014.

Profit reported in the 2013 profit and loss before adjustment for the given items is P600,000.

What is the adjusted profit for the year ended December 31, 2013?
Suggested Answers:

I. 18,460 units; P197,000; beg. 6150 units; end. 5690 units & P190,946
II. P25%; P74,000; P130,000
III. P486,000