CHAPTER 10 9] wveEnToriEs TECHNICAL KNOWLEDGE | | : To understand the meaning of inventories. To identify the major classes of inventory. To account for inventory transactions using periodic and perpetual inventory system. To know the gross method and net method of recording purchases. se To identify the items i:i= A > Definition Trave , Ventories are aeseta held for sale in the ordinary course pales, in the process of production for such sale or in the font °f materials oy supplies to be consumed in the production proces, or in the rendering of services. lnventorios encompass goods purchased and held fo, resale, for example ‘Merchandise purchased by a retailer and held for resale Land and other property held for resale by a subdivision b. entity and real estate developer. Inventories also encompass finished goods produced, goods in process and materials and supplies awaiting use in the production process. Classes of inventories Inventories are broadly classified into two, namely inventories of a trading concern and inventories of manufacturing concern, A trading concern is one that buys and sells goods in the same form purchased. The term “merchandise inventory” is generally applied to goods f held by a trading concern, ~ A manufacturing coi altered or converted available for sale. The inventories of a a. Finished good: b. Goods in propefinitions finished goods are completed products which are ready for sale finished goods have been assigned their full share of manufacturing costs. Goods in process or work in process are partially completed produets which require further process or work before they can be sold. 2rials ave goods that are to be used in the production or process has been done on them as yet by the entity No worl jnventorying them. Broadly, raw materials cover all materials used in the manufacturing operations. However, frequently raw materials are restricted to materials that will be physically incorporated in the production of other goods and which can be traced directly to the end product of the production process. Factory or manufacturing supplies ave similar to raw materials but their relationship to the end product is indirect. Factory or manufacturing supplies may be referred to as indirect materials.entory 5 jnv' wee ple in the title shall be j Goods includible ch the © tity has Pe ina voods to WTR. of loca” who i As arule eae regardless a legal language which ‘n the inventory 2” s » re praae vps ttle’ fmnersbp changes. Mey his W ‘the Prat of ime ab We FOB 5! Legal test q 1g to be inventoried? Under —] eg umomna om Bea transf — is the entity ative, the £0 e include, , int | f the answer 18 Ut the offir mat ded iy 2 the inventory. Thus, she goods shall be excl If header isto eres the & ded frop, iprere) he inventory. A ee erie aired ; coor Applying the legal test, the following it © includible j, charg inventory: a. Goods owned and on hand 5 On th h. Goods in transit and sold FOB destination is tra c. Goods in transit and purcbased FOB shipping point goods d. Goods out on consignment e. Goods in the hands of salesmen or agents A £ = .CCOl Goods held by customers on approval or on trial charg Exception to the legal test poi Installment cont; racts: i the seller tint the ue Brovide for retention of ti Ba. B e selling pri of title by J J Price is fully coll, pen” Following the legal tes! lected. wher are sti 1, Ue goo ; A ill the propert ds sold on installment basis whic ineludible in his inp is : nve ~*t and therefore normally ever, ‘ " a Thismm who is the owner of goods in transit? this will depend on the terms, whether FOB destination or yoB shipping point. FOB means free on board yader FOB destination, ownership of goods purchased is Pansferred only upon receipt of the goods by the buyer at the aint of destination. P hus, under FOB destination, the goods in transit are still the property of the seller. ‘Accordingly, the seller shall legally be responsible for freight charges and other expenses up to the point of destination. On the other hand, if the term is FOB shipping point, ownership is transferred upon shipment of the goods and therefore, the goods in transit are the property of the buyer. Accordingly, the buyer shall legally be responsible for freight charges and other expenses from the point of shipment to the point of destination. when goods are shipped, regardless of the P which title passed. is This procedure is e: In practice, during an accounting period, the accountant normally records purchases when goods are received and Beles =e estatesAnt charge on the gg thin means that the reve Ter shall collect Freight oles a aid. The common St "freight charge is shipped is not yet pal yo, under this, : same from the aoe Getually paid by the buyer ; 8 Freight prepaid ~ This, Me2D® Nhe goods shipped is already P' © aeiseo tipi 1 -ms "FOB destination Soe ae heme feat, ane ou Se a aE aed estination. th ne end to the point of destina’ he : ht collect" "freight ee ce the See ae paid the freight charge bu’ z © Party Bee ate y the freight charge who is supposed to legally pay Freight terms hat the freight charge on g, seller. and Maritime shipping terms i : who ships FAS must beg alongside — A seller w ‘: Aiecaneeeatd risk involved in delivering the goods to the oat to or alongside the vessel on which the goods are to be shipped. The buyer bears the cost of loading and shipment and thus title passes to the buyer when the carrier takes possession of the goods. CIF or Cost, insurance and freight — Under this shipping contract, the buyer agrees to pay in a lump sum the cost ‘ the goods, insurance cost and freight charge. The shipping contract may that the buyer agrees to pi goods and freight charge In either case, the seller m title and risk of loss shall the goods to the carrier. Ex-ship — A seller who expenses and risk of lo, which time title and risk— = — 1 consigned goods consigninent is a method of marketing goods in which the owner called the consignor transfers physical possession of tain goods to an agent called the consignee who sells them er ne owner's behalf 0 nsigned goods shall be included in the consignor’s inventory and excluded from the consignee’s inventory. ight and other handling charges on goods out on consignment are part of the cost of goods consigned. When consigned goods are sold by the consignee, a report is made to the consignor together with a cash remittance for the amount of sales minus commission and other expenses chargeable to the consignor. For example, a consignee sells consigned goods for P100,000. This amount is remitted to the consignor less commission of P15,000 and advertising of P2,000. The consignor simply records the cash remittance from the consignee as follows: Cash 83,000 Commission 15,000 Advertising 2,000 Sales 100,000Wi With co; eities nid the take DW > ories fot invento ang for inventories, ass ating » Nang eyster hy Tw _gical counting of e he phys ieee pe ; stem call period to determine quant % ‘The periodic 99* ‘counting ‘tig, The Pre the end of the plied by the COFrespondin, ‘ x tren multiplier pelance sheet puree re quantities 9t@ HT vale Jor a] inventories, Pt costa tot BEIT yal oF PID” : This approach & : val nerally used wh : , procedure 1S ; len The periodic inventory proved small peso investment, suc ifldual inventory 2S parts. % groceries, hardware i tem re the perpetual sys quires bee ‘called stock cards that usually oftat® nds caliqory inflow and outflow, © 8 and decreases are reflected in the g ce represents the invento; ries "Y. Thi On the other h maintenance of ret running summary of Inventory increases cards and the resulting balant approach gives book or perpetual invento The perpetual inventory procedure is commonly ic Ly use Tie ae tieieelniiually represent ‘a “<0 large peso investment such as jewelry and cars. ‘elatively In an ideal per : ‘petual system, th dnd codicoll both Ghee ate eae cards are kept to reflect Consequently, the enti : tity. we on hand at a particular ities" shia to know the inventory 2. In recent ye Years, the wi Practically all large es aintain a perpetual j 3 silustré 4. Pure Pure y 2. Pay Frei 3. Ret 4. Acc Sa pr Aciylustration — Periodic system 1. Purchase of merchandise. on account, P300,000. 8 o, Purchases ica ‘Accounts payable Bon o0) 300,000 a 3, Payment of freight on the purchase, P20,000. : ‘ Freight in 20,000 2 Cash f 20,000 - he | ag 3, Return of merchandise purchased to supplier, P30,000. | Accounts payable 30,000 | a Purchase return ‘ 30,000 4 : a . 4, Sale of merchandise on account, P400,000, at 40% gross profit. : 7 Accounts receivable 400,000 3 Sales 400,000 5. Return of merchandise sold from customer, P25,000. 25,000 Sales return Accounts receivable 25,000, 6. Adjustment of ending inventory, P65,000. Merchandise inventory-end Income summary= | Ta gise OM accounts Pur go of mere pane an iM rayabl ee ee » purchase wht om the i 20,000 2. Payment of fren erehi andise inventory Cash surchased to SUPPIiex, P3O,09, merchandise F 20,00, or exa™mP ps5. 900, #! Me jnventory © 3. Return of 2 ; 000 i vi Merche Accounts payable 3 Aco eandige inventOrY 0,009 cn he inve sooount, P400,000 at gross prof; Seat Sale of merchandise on BCCOUN'» j000 at ge it of pecans ; as of meet of merchandise eold is 60% or P240,000, preakage Accounts receivable 400,000 Howeve Sales 400,009 separate Cost of goods sold 240,000 a Merchandise inventory 240,000 Trade Trade d in order is clearly actua)ly Under the perpetual system, the cost of me . the co: srcha is IAG soaues. thie. wee determinable from the stock card. 5. Return of merchandise sold fro Thus, t cost of th i m customer, P2! e merchandise returned is 60% or Sec The The pr Z : increas price a _ Cash©0,009 000 000. 000 it of he, entory Shortage or overage the g re of jance :the end of the ferent amou an. adjustment is necessa: “ge or overage, andise inventory (65,000 - 55,000) pecause this is often the result of normal preakage in inventory. However, abnormal and material sho separately classified and presented as othe: Trade discounts and cash discounts in order to arrive at the invoice price whic actually charged to the buyer, Thus, trade discounts are not recorded. The purpose of trade discounts is to enco price at illustration, the merchandise inventory account has debit Sunting period, a physical count indicates ry to recognize or example, if the physical count shows inventory on hand of 000, the following adjustment is necessary: ortage 10,000 10,000 qhe inventory shortage is usually closed to cost of goods sold shrinkage and xrtage shall be YY expense, Trade discounts are deductions from the list or catalog price h is the amount urage trading or crease sales. Trade discounts also suggest to the buyer the his nay be resold. a=, 1 sees 1 is P500,000 ogg i chase? Illustration = ear din ercnandive f Te of th credit tor” and 10%, and. the cash 20% and 10%, ) E oun! ts 2 eas days: ne trade dil a ad Dune 3 D750" a if the e payment is madg discount is ee pasmen cunt of the inv Cae vperiod O! at ‘ ine pes! : 500,000 al (200,009 0 List prot scott (20% x 500.00 ) conte First trac (20,00 100) Second trade discount (10% * 400,01 a (18,000) Invoice price «76x 980,000) ee Cash discount . cam Payment within the discount Pen 342.000 e is: ‘The journal entry to record the purchas 360,000 Purchases a ‘Accounts payable Note that the trade discounts are not recorded. The journal entry to record the payment of the invoice within the discount period is: Accounts payable pin 360,000 Purchase discounts Methods of recording pure 1. Gross meth ho recorded at Bo, EB ‘urchases 2 Net meth at net, oe Purchases andustration - Gross method s count, P200,000, 2/10, n a LAID LID LOD 196,000 it is made within the discount period 196,000 196,000 discount~~ ot method a . ethod vs. n¢ ll Gross meth the net method TePre ents the a x jor the od reprovent the The cost measured - tne of Pay Sent s va < equivalent Plovrect historical cost rs y correct his theoretica: record purchases at. grog an most entities Te ‘ However, in practice, pra d shod violates the matching Pringp e Technically, the ne saeeded only when eniorariey cash The because con ‘a when purchases that gt Se to the diff is paid rather thi ae discounts are made. allocate discount: Moreover, this procedure does not allocate discounts taken Me between goods sold and goods on hand. eet , for Despite its theoretical shortcomings, the gross method jg ae supported on practical grounds. Ci The gross method is more convenient than the net method from, a bookkeeping standpoint. T ‘pea re Moreover, if applied consistently over time, it usually produces no material errors in the financial statements. ti Cost of inventories “ L Tl i ; ‘¢ ‘he cost of. Inventories shall comprise: : ' a. Cost of Purchase t b. Cost of conversion Fees. ¢ Other cost incurred in Present location andmre cost of purchase of inventories comprises the purchase price import dutiea and irrecoverable taxes, freight, handling ther costs directly attributable to the acquisition of od goods, materials and services. ade cigoounts, rebates and other aimilar items are deducted determining the cost of purchase phe cost of purchase shall not include foreign exchange which arise directly from the recent acquisition aventories involving a foreign currency Moreover, When inventories are purchased ‘with deferred eettiement terms, the difference between the purchase price for normal credit terms and the amount paid is recognized as interest expense over the period of financing. Cost of conversion The cost of conversion of inventories includes cost directly related to the units of production such as direct labor. It also includes a systematic allocation of fixed and variable production overhead that is incurred in converting materials into finished goods. Fixed production overhead is the indirect cost of production that remains relatively constant regardless of the volume of production, Examples are depreciation and main te and equipment, and the cost of administration. Variable production overhead is that varies directly with the volui Examples are indirect labor andere {jf -_—_ =p on. overhead = Allocation of fixed product! ead to the cogt f the productig, cation of fixed Pl based on the BO} hi duction over! oom nal capacity © The all ema conversion is facilities juction expected to be achieved on rod! ene periods OF seasons under normal loss of capacity resulting Normal capacity is t jnto account the average over a num circumstances talking from planned maintanance- iocated to each unit of The amount of fixed overhead all d as consequence of low production production is not increase or idle plant. Unallocated fixed overhead is recognized as expense in the period in which it is incurred. Allocation of variable production overhead Variable production overhead is le allocated to each uni / production on the basis of the actual use of the prod i ‘lon, facilities. A production i process may result in being produced simultaneously. more than one product This is the ca: se, for examy or where there is a oa Va the costs of converg aa allocated betwee nt basis, fo , for value of each product Most by-products by theis oth othe that jocat For aesi inve Hlov invé incl— al’) dss? er cost cag ea : Luce Of une c0st is included in the cost of inventories only to the extent x Wieit is incurred in bringing the inventories to their present Yi raion and condition. ved Orme yor example, it may be appropriate to include the cost of whist gesiening Pro uct for specific customers in the cost of ting javentorics. owever, the following costs are excluded from the cost of jnventories and recognized as expenses in the period when it of Ction jncurred: 4, Abnormal amounts of wasted materials, labor and other the production costs. Storage costs, unless these costs are necessary in the production process prior to a further production stage. Thus, storage costs on goods in process are capitalized but of on storage costs on finished goods are expensed. c. Administrative overheads that do not contribute to bringing ct inventories to their present location and condition. d. Distribution or selling costs Cost of inventories of a service provider The cost of inventories of a service of the labor and other costs of providing the service, includin attributable overhead. Labor and other costs re @dministrative personnel are xpenses in the period inag a | =a QuESsTIONS pRO} ries. 1. Define invent lasses of inventory. probl two 2 2, Explain the snctudible in inventory Amiab ds are : ‘ 3. What goo" atte determining inventory inclu ene 4, What is the legal ts J me Items of goods in transit! pe — 5. Who is the owner Items 6, Fxplain FOB destination. ca 7. Explain FOB shipping point Sa 8, Explain freight prepaid. re Item: 9: Explain freight collect. Siar Item 10, What do you understand by the maritime terms FAS, gp Item F and Ex-ship? i rede / 11. What is consignment? Roe 12 Who is the owner of goods on consignment? ae 13. Explain the statement Re 14. Expl Presentation of inventories, Explain the two system: ems of accounti 7 ‘ Co 16, Distinguish trade di nting for inventories, vade discounts and 16. 3 j aah, discounts, xplain the two methods 17. What are 18, Explain Cost of Purchase 19. Explaj n Cost of Conversg;, the componen; 20, Explain the Cost of inve,pROBLEMS problem 10-1 (IAA) amiable Company provided the following data at year-end: Jtems counted in the bodega 4,000,000 Items included in the count specifically segregated per sales contract 100,000 Itemsin receiving department, returned by customer, in good condition 50,000 Items ordered and in the receiving department, : invoice not received 400,000 ‘ Items ordered, invoice received but goods not received. Freight is paid by seller. 300,000 Items shipped today, invoice mailed, FOB shipping point — 250,000 Items shipped today, invoice mailed, FOB destination 150,000 Items currently being used for window display 200,000 Items on counter for sale 800,000 Items in receiving department, refused by us because ofdamage 180,000 Items included in count, damaged and unsalable 50,000 4 Items in the shipping department Required: Compute the correct amountI ._¢ information: ) ylowine ¥ x0 Ea ® 1,400, Problem 10-2 Oya 0 Natal Company see als ordered on materi i inventors, tons 2,000.08 Unespired insurane pr SbipPing ts a | : Veit Bt fo owned retail sen 1 en Finished goog gxe probiton cost gneea including 400,009 aeons in hands ofCO™ . Ri i profit on sales astomers, SRIPP' ol F inished goodsin transit toc! 25009 i on at cost teost y rinsed gos out on approval a 52.09 Unsalable finished goods, a 4 , Office supplies ade fe oint, Materialein transit shipned ob ip as excluding freightot PHM sales price, cost P150,000 200,000 Goods held on consignment, Required: Compute the correct amount of inventory. Problem 10-3 (IAA) Luminous Company provided the following information at current year-end: Finished goods in storeroom, at cost including over] of P400,000 peed Finished goods in transit, including freigh it charge P20,000, FOB shipping point q # Finished goods held by eal j cost, P100,009. mena 2,000,000 Goods in process terialsproblem 10-4 (IAA) ummer Company is a wholesaler of car seatcovers. At the peginning of the current year, the entity’s inventory consisted 9f90 car Seatcovers priced at P1,000 each. During the current years the following events occurred: _ Purchased 800 car seatcovers on account at P1,000 eack. Returned 50 defective car seatcovers to supplier and received credit. Paid 600 of the car seatcovers purchased. 4, Sold 790 car seatcoyers at P2,000 each. Received 20 car seatcovers returned by a customer and gave credit. The goods were in excellent condition. 6. Received cash for 680 of the car seatcovers sold. 7, Physical count at year-end revealed 60 units on hand. Required: tments to record Prepare journal entries, including adjust s periodic the above transactions assuming the company use‘ system and perpetual system. a. b. Determine the cost of sales under each inventory system. Problem 10-5 (ACP) Winter Company received quotations from two entities for an item of merchandise as follows: sicpiaiiee , ; From Company A: List price P500 shipping point From Company B: List price P50 point, 2/10, n Required: For each quotation, compute the tobe paid by the buyer within oi» I 6 (AA) followin® transactions fo, e ise problem 10 a r problem provi od operation Pe Pe tn a vice price of P4,756 ane current seat He 4 an inv’ 9 190g, tra noe aise ab 4/10, n /30 ear, me are 2 “nt is allocated ty .. year 1 ‘the freieh! 3 von 5 ; p3,717,000, of which f 1,617, is ” purchase rchases Fe io “ey | + haan paymentonfie discount Pe unpaid accounts payay, vane er that all discou™ 4. It is expected tha he merchandise remaing » » lost. seen ore 5. Ot pecember 31, one fift hand Required: he transactions y ries to record th iiah 3. ti 2. Prepare journal entries | gross method and net method, ry and cost of sales under each method b. Compute invento Problem 10-7 (IAA) nt year. The entity Fall Company began operations in the cu used perpetual inventory system. 1 pug the year, Fall Company purchased merchandise having a gross invoice cost of P1,000,000, All made under the terms 2/10, n/30, FOB ees aaa 50,000. 2. Fall Company paid freight 3. During the year, Fall Cor merchandise within the The remaining 20% was 5. Fall Company sold 70% of cash of. P1,200,000, Th year-end, a Required; Prepare journ; method andproblem 10-8 (AICPA Adapted) myriad Company revealed the following purchase (aera nay occurred during the last few days of the fiscal year, Which ends December 31, and in the first few days after that date. 1, An invoice for P50,000, FOB shipping point, was received and gree on December 27. The shipment was received : in satisfactory condition on January 2. The merchandise was not included in the inventory. g, An invoice for P75,000, FOB destination, was received and recorded on December 28. The shipment was received in satisfactory condition on January 3. The merchandise was not included in the inventory. 4 3. An invoice for P30,000, FOB shipping point, was received and recorded on January 4. The invoice shows that the goods had been shipped on December 28 and the receiving report indicates that the goods had been received on, January 4. The merchandise was excluded from inventory. An invoice for P90,000, FOB shipping point, was received on December 15. The receiving report indicates that the goods were received on December 18 but across the face of the report is the notation “merchandise not of the saine quality as ordered - returned for credit, December 19”. j The merchandise was included in the inventory. = ‘An invoice for P140,000, FOB and recorded on January 4. that the goods were rece merchandise was included Required: Prepare the adjustments on open.’| L Aa ga d) te AdaP’ December 31, 299 oblex 10-9 AICPA yento¥Y °F JF goods Priced ag of Biers a Problem ny 3ep0! teh a ‘cal es djustment relating thy Densact Hero Company yon a PPYE aye ae 6,000,000 er acesst «wore goods billeg 4, Freight P and be! , n exer ine ae following: physical Pon ‘December 31, 2029, a event P : Included ip Sipping pot 96,000 and were Picked ty, i No sales customer F ¢ of P125, a da COS! ogg. what Those goods PAE puary 10, int on December 28, 99, year-en he carrier 0 ng poi _ , 2099 A - shipping re received on Janys 4. 700, : * Goods shipped FOB oe pany 00, y b. 650, from a vendor to Hero 5 300,000. ce 4, 2021, The invoice orted as inventory on Decembe, d. 600 Id be rep’ What amount shou. Ob) 31, 2020? a. 5,875,000 Kindn b. 6,000,000 a tre ©. 6,175,000 ee d. 6,300,000 pes 50,0 Problem 10-10 (AICPA Adapted) P50, Empty Company reported inventory on December 3 1, 2020 at What P2,500,000 based on physical count priced any necessary adjustment for the following: Merchandise costing P100,000, shipped FOB shippi Point from a vendor on Decembi wes recorded on January 6, 2021, 1 “020 WAS xeceived and Goods in the shippin, area ¥ although shipment aa Oe n The goods billed to jitesdyee the cus mber 30, 2020 had cog What 31, 20299 Ut Should be at cost and before20 a problem 10-11 (AICPA Adapted) t Co Cos; ity, ompany had the fe i t tory shipped on consignment i t Jnxignt paid by Dignity Companyr eg 299000 ‘Og frventory, received on consignment from a consignor 800,000 Jeigne paid by consignor 30,000 ) by No sales of consign¢ 1 goods were made during the current year. yyhat amount should be reported aa consigned inventory at 120 pene wy er problem 10-12 (AICPA Adapted) Kindness Company regularly buys sweaters and is allowed dirade discount of 20% and10%. The entity made a purchase on March 20 and received an. invoice with a list price of P900,000, a freight charge of 50,000, and payment terms of net 30 days. What is the cost of the purchase? a. 648,000 b. 630,000 c. 698,000 d. 680,000 Problem 10-13 (AICPA Adapted) On June 1, Compassion Company sold merchandise with a list price of P1,000,000 to a customer. The entity allowed trade discounts of 20% were 5/10, n/30 and the sale was made The entity prepaid P50,000 of deliver an accommodation. The customer pa What amount is received from theed) re pA Adapt Problem 10-14 (alc able on December tea accounts POY*she following dat ey plas Kew Company reported 2° gideriné a 302 2020 at P2,200,000 Pe! ing point on Decoy relZ shipping P Goods shipped to Kew Frit ripPiinvoice cost Of PA0,oy) e anal 22, 2020 were Jost in recorded by Kew: On January 7, 2021, Kew ld? the common carrier. 4 thorized Kew to ret, fon Deeemibee 21 202One enue tm for fall credit goods shipped and billed at P70,000 on December 15, 2020. goods were shipped by Kew on Decembey edit memo was received anq was not P40,000 claim againg The returned 28, 2020. A P70,000 cr recorded by Kew on January 5, 2021. On December 31, 2020, Kew has a P500,000 debi , 2020, E it Es accounts payable to Ross, a supplier, eau coal 500,000 advance payment for goods to be manufacieal © ed, What amount should b December 31, 20202? "sed 88 accounts payable om a. 2,170,000 b. 2,680,000 © 2,730,000 4. 2,670,000problem 10-15 (AICPA Adapted) ted 1 yack Company reported accounts payable on December 31, ‘ata; a 3020 at P4,500,000 before any necessary year-end adjustments ed ‘ relating to the following transactions: m 40,008 ‘ + On December 27, 2020, Black Company wrote and recorded j checks to cred tors totaling P2,000,000 causing an overdraft of P500,000 in Black Company's bank account on December Baings 31,2020. The checks were mailed out on January 10, 2021. » On December 28, 2020, Black Company purchased and turn, received goods for P750,000 terms 2/10, n/30. Black Company records purchases and accounts payable at net amount. The invoice was recorded and paid January 5, 2021. * Goods shipped FOB destination, 5/10, n/30 on December 20, 2020 from a vendor to Black Company were received January 15, 2021. The invoice cost was P325,000. On December 31, 2020, what amount should be reported as accounts payable?Problem 10-16 (IAA) ity 20 revealed that Joyoy, ad aacits 5 of 0,000. “i December 31) © ¢ p4,410,0 Doce be x cotravenvary with «2% De pompany ad saventon fs s amount: : Company had inv ee ten coir os 9 were 6X ; of. rhe following items wer DS tea none The following a Z * Merchandise of P6 Se. . | Merch ¢ P380,000 was pee ae seyous eee * Merchandise pe ier De ste FOB destination e , cted to receive the goods ow ood omer was expe dest ary 5, 2021. 2020 60,000 was shipped by Joyous Merchandise costing P460, y 29, 2 FOB shipping point to a customer on December 29, 2029, * The customer was expected to receive the goods on January 10, 2021. entit * Merchandise costing P830,000 shipped by & vendor FOB Ba God destination on December 31, 2020 was received by Joyous FOE on January 15, 2021. ae r Merchandise costing P510,000 Purchased FOB shippj Sue I ‘Pping Point was shipped by the supplier on December 31, 2020 and received by doyou: 's on January 5, 2021. What amount of invent ites ntory should & 5,300,000 b. 4,690,000 © 8,800,009 4. 4,920,099plem 10-17 (AA) sity Company counted the ending i aaber 31, 2020 and reported the amount of P: fee ony. correctiona: pel nventory on 2,000,000 of the following items were included when the total int oF the ending inventory was computed: ge goods located in the entity's warehouse 150,000 are oF consignment from another entity Goods sold by the entity and shipped FOB destination were in transit on December 31, 2020 and received by the customer on January 2, 2021 200,000 Goods purchased by the entity and shipped FOB shipping point were in transit on December 31, 2020 and received by the entity on January 2, 2021 300,000 Goods sold by the entity and shipped FOB shipping point were in transit on December 31, 2020 and received by the customer on January 2, 2021. What amou 31, 2020? . 2,500,000 . 2,350,000 . 2,900,000 . 2,750,000 Pe sp 400,000 nt of inventory should be reported on December1 “ 5,850,009 4 5,800,009 > opie od) cpa Adapte J count on Decem, P down | a 10-18 (Al da PoYrie with a total eggett guido r nducted AF dine 4 4 Company conden whieh rev? 5t210)9,000 $7,600. 77,000 wvealed that the following |, Goods : » further investigation Toone Janua Haver « sxaladed fom * hich are being held for yecord si sold toa customer aig convernieHiCe with a cog The go ¢ i oe to call at the cus 3: ee point. 90,000. t costing P500,000 w, . es 1 a product co . ag Goss *” goetdad ae conta en when the physiegs ics tanding in the sh vas taken a ee inventory was tal ncluded in the inventory because i, pee The product was not inc’ instructions’ thoug! was marked “hold for shipping aoe ae vestigation revealed that the customer's order w, * A P35 The investiga a ONgRBUE HAT the case was shipped 31, 20 dated December 28, , P 209 E a the customer billed on January 5, 2021 inven * A special machine costing P250,000 fabricated to order The gi for a customer was finished and specifically ania segregated at the back part of the shipping room on December 31, 2020. * An in ‘The customer was billed on that date and the machine “he was excluded from inventory although it was shipped ihe on January 5, 2021, Bia Geods in process costing P800,000 hel ‘ iniclin, Processor for further processing, @ bY an outside * “ Goods costing P50, 000 shi AB. 50,000 shi on December 3 poate Pee by 4 vendor FOB seller 30, 2 January 10, 299)" onc ream ed by the entity What is the ce at rrect amount of ; ‘ reported on December 31 20207 “ & 6,500,009 5,550,009 300ein 10-19 (LAA) 1 Company i8 preparing the 2020 year-end financial rts. Prior to any adjustments, inventory is valued at Goods eons a Teo eEey were received from a vendor on y 5, 2021. The related invoice was received and phe goods were shipped December 31, 2020 FOB shipping point Goods costing P850,000 were shipped on December 31, 2020 foa customer FOB shipping point. ‘Tho goods were included in ending inventory for 2020 even though the sale was recorded in 2020. cn . A P350,000 shipment of goods to a customer on December pp 31, 2020 FOB destination was not included in the year-end inventory. ‘The goods cost P260,000 and were delivered to the customer on January 15, 2021. The sale was properly recorded in 2021. An invoice for goods costing P350,000 was received and recorded as a purchase on December 31, 2020. The related goods shipped FAS were in transit on December 31, 2020 and received on January 5, 2021 and were not included in the physical inventory. + AP1,050,000 shipment of goods to a customer on December 30, 2020 FOB destination was recorded as a sale in 2020. The goods costing P840,000 and delivered to the customer — on January 5, 2021 were not incl . 2020 = inventory. r What is the correct inventory on & 9,300,000 4. 7,610,000 % 8,100,000 4 8.450,000of ted) a pr opA AdaP 0 days, FOB shipping e1 20 (AICPS , are net 60 C4955 000,01 1 Problem 10:90 (AT wr mS aed FOODS ell White Company Cf ret wo, before Ye oc t. Sales, d bot aber ot 2 a pany authorized pegeamer ps the yea 90, White Company 4g pilled a ,000.50 2020 ds shippe? on * goods on, ceive by, White, Company ay) Sa oenaa were seco’ aso wasioouctangy wit The return f and a 60,00 wee January 5, 2021, ae nee £300,000 were | ‘ ‘ s with an invowre amon. The goods were shipped oy, Ho yon danuary 10, 2! 2 1, 2020. + of P200,000 were billed ang ee * Goods with an invoice amour o0. The goods were shipped cae recorded on December 30, 202 on January 5, 2021. 1 : tomer notified Company | : On Jama ot 300,000 and shipped on December 81, ber that goods billed 2020 were lost in transit. ’ or rr‘ ye a. What amount of net sales should be reported for the current year? = a. 5,050,000 3 b. 5.550,000 a c. 4,550,000 d. 4,450,000 ‘i Problem 10-21 (AICPA Adapted) " Purple Company had sales of of the current year. Experien equaling 7% chaeee will be additional 3% will be ret merchandise is readily reg merchandise T merchandis What am, of December? should beprobiers 10-22 (AICPA Adapted) : yow Company, a distributor of machi ht a net | velinine from the manufacturer in Soeenabey 2020. for ~ ioe ep FY on December, 30, 2020, the entity sold this machine for T] %50,000, under the following terms: 2% discount if paid One jjehin a oe ays, 1% discount if paid after thirty days but the | “jinin sixty days, or payable in full within ninety days if not vit! i paid within the discount periods. 0 on yowever, the customer had the right to return this machine to Yellow Company if it was unable to resell the mrachine ] fefore expiration of the ninety-day payment period, in which ag ase the customer's obligation to Yellow Company would be a ganceled. ; Inthe net sales for the year ended December 31, 2020, what C ~} amount should be included for the sale of the machine? a, 750,000 "735,000 ¢ 742,500 d. 0 Problem 10-23 (AICPA Adapted) On October 1, 2020, Indomitable Company sold 100,000 gallons of heating oil at P80 per gallon. Fifty thousand gallons were delivered on December 15, 2020, and the ren ining 50,000 gallons were delivered on Januar: 4 Payment terms were: 50% due 6n the first delivery, and the remain delivery, b What amount of sales revenue D—: Retailers we ' Goods were in transit; fy re > _—' . arcra Adapted) Problem 10-24 ( ributor of automotiy, Problem wholesale distr ollowing initia) Fancy Company 18/0) ntity reves lacement Pa - 31, 2020: amounts on December I count 1,250,00, ce 1 based on physic® 1,000,009 tory at December 31 D8 9,000,009 payable Accounts Pal ion i informatior : AddletonAlit from another entity to Fangy A. Parts held on consignment from ting to P165,000, wery un Bip DoaeteTe soni Dacomber 31, 2020).ai ber 31, 2020. Company, the consig included in the phy: in accounts payable on Decem| sed and paid for in 2 yhich were purchase: Dechuitec Meters caainithe last sweek of 2020 and appropriately recorded as sales of P28,000. The parts were included in the physical count on December 31, 2020, because the parts were on the loading dock waiting to be picked up by the customers. Parts in transit on December 31, 2020 to customers, shipped FOB shipping point, on December 28, 2020, amounted to P34,000. The customers received the parts on January 6, 2021 Sal of P40,000 to the customers for the arts were. seal Pancy Company on January 2, 2021. asacorse a biti isst ips ¢ re holding P210, ds on consignme tores on December BL Cember 3], 2020, The ood The goods 2020, 29, Wete shipped Fywhat is the correct amount of inventory? 1,300,000 1,320,000 1/334,000 4 1,090,000 what is the correct amount of accounts payable? Boge a. 835,000 p. 960,000 ¢. 975,000 . d. 860,000 What is the correct amount of sales? a. 9,250,000 b. 9,290,000 ¢. 9,040,000 d. 9,000,000= ~~. ~~ >» ed) all tools, provided of December 31, 2029! end (arc Adapt ure) Problem 10-25 yam yarry Compa the year 1,750,009 a prmation oe . Reiss 1 based on physical co unt Be ‘ te payable at Decembe infor ion Additional informatio) ae a ite : 1 coun por 31, 2020. Those tools had ace Included in the physica led at P35,000. FOB shipping point on D ast of P28,000 and were bi in loading dock waiting to be picked up by A The shipment the common Goods were in transit from a vendor to Quarry Company on December 31, 2020. The invoice cost was P50,000, and the goods were shipped FOB shipping point on December 29, 2020. Work in process inventory costing P20,000 was sent to an outside processor for plating on December 30, 2020, Tools returned by customers and held Pending inspection in the returned goods area on December 31, 2020 were not included in the physical count, On January 5, 2021, the ‘ools costing P26,000 were i and returned to inventory, Credit memog totali 3 on the same fae P40,000 E. Tools shi Cost of Pos, 000. transit on», Goods, with an invoice cost of P30,000, received from a F vendor at 6:00 P.M. on December 81, 2020, were recorded on @ receiving report dated January 2, 2021. The goods were not included in the physical count but the ah © was included in accounts payable on December 31, 202 Goods received from a vendor on December 26, 2020 were Ga included in the physical count, However, the related P60,000 vendor invoice was not included in accounts payable on December 31, 2020 because the accounts payable copy of the receiving report was lost 4. On January 10, 2021, a monthly freight bill in the amount of P20,000 was received. The bill specifically related to merchandise purchased in December 2020, one-half of which was still in the inventory on December 31, 2020. The freight charge was not included in either the inventory or in accounts payable on December 31, 2020. What is the correct amount of inventory? a. 1,883,000 b. 1,911,000 ce. 1,885,000 ce. 1,925,000 What is the correct amount a. 1,330,000 b. 1,280,000 c. 1,250,000 ad. 1,270,000 3. What is the correct amo 8,460,000 8,500,000 8,465,000 8,425,000 RO opey sple choice UFRS) : Problem 10-26 Multiple ae .hould nol in 1 uc of he an to reno when de d goods a. Storage costs of part-finished © discounts See BOE ory inwata é Import duties on shipping: ry does not include a I 2. The cost of inventor ries taff i i Salarios of frerecessary in the production process tage bofore a further production s . c. Abnormal amount of wasted materials d. Irrecoverable purchase taxes 3. Which of the following costs of conversion cannot be included in cost of inventory? a. Cost of direct labor b. Factory rent and utilities c. Salaries of sales staff d. Factory overhead based on normal capacity 4. Which of the following should be i & taken int. when determining the cost of inventory? cons 8. Storage cost of part-fj b. Abnormal freight in ted goods ©. Recoverable6 . When determining the cost of MGEwe Inventories encompass all of the following, except : es andise purchased by a retailer pb. Land and other property not held for sale Finished goods produced d. Materials and supplies for use in production A ee deyelonee must classify properties that it holds for sale in the ordinary course of business as Inventory b. Property, plant and equipment Financial asset d. Investment property Factory supplies to be consumed in the production process are reported as Inventory b. Property, plant and equipment Investment property d. Prepaid expenses Which of the following should not be reported as inventory? a, Land acquired for resale by a real estate firm b. Shares and bonds held for resale by a brokerage firm iC Partialy completed goods held by a manufacturing entity d, Machinery acquired by a manufacturing entity haa Ss following should not be incl Interest on loan obtained Commission paid when Labor cost of the invento Depreciation of plant eq! BerDI x jple choice GAA) problem 10-27 Multiple cho’ r¢ ry included in the computation of net incomes 1. Why is inventory in 1. To determine cost of goods sold b. To determine gales SUE in c. To determine merchandise | ose d. Inventory is not included in the Pi ng income 2. Which of the following is a characteristic ofa Perpetua) inventory system? a. Inventory purchases are debited to a purchases account, b. Inventory records are not kept for every item. ¢. Cost of goods sold is recorded with each sale. d. Cost of goods sold is determined as the amount of C purchases less the change in inventory. 3, Which of the followin, g is incorrect abo inventory method? ut the perpetual a. Purchases are b. The entry to goods sold a