BM2008

NAME: DATE: SCORE:

TASK PERFORMANCE
Instructions: Determine the requirements for each independent case. Write your answers to the space
provided. Show your computations. (20 items x 5 points)
AUDIT OF INVENTORIES
Case No. 1: UMBRELLA ACADEMY
In testing the sales cut-off for the UMBRELLA ACADEMY in connection with an audit for the year ended
October 31, 201A, you find the following information. A physical inventory was taken as of the close of
business on October 31, 201A. All customers are within a three-day delivery area of the company’s plant.
The unadjusted balances of Sales and Inventories are P7,500,000 and P330,000, respectively.
Invoice Date Date
Number FOB Terms Shipped Recorded Sales Cost
6671 Destination Oct. 20 Oct. 31 P3,000 P2,700
6672 Shipping Point Oct. 31 Nov. 2 7,500 6,000
6673 Shipping Point Oct. 25 Oct. 31 5,400 3,600
6674 Destination Oct. 31 Oct. 29 12,600 9,300
6675 Destination Oct. 31 Nov. 2 27,600 24,000
6676 Shipping Point Nov. 2 Oct. 23 19,500 15,300
6677 Shipping Point Nov. 5 Nov. 6 22,500 17,400
6678 Destination Oct. 25 Nov. 3 11,700 6,000
6679 Shipping Point Nov. 4 Oct. 31 25,800 24,600
6680 Destination Nov. 5 Nov. 2 15,000 12,000

Based on the foregoing information, compute the October 31, 201A, adjusted balances of the following
accounts:
1. Sales ___________
2. Inventories _____________

Case No. 2 STRANGER THINGS

The following audited balances pertain to STRANGER THINGS Company.
Accounts payable:
January 1, 201A P286,924
December 31, 201A 737,824
Inventory balance:
January 1, 201A 815,386
December 31, 201A 488,874
Cost of goods sold-201A 1,859,082

3. How much was paid by STRANGER THINGS Company to its suppliers in 201A? _____________

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Case No. 3: HIMYM

The management of HIMYM, Inc. has engaged you to assist in the preparation of year-end (December 31)
financial statements. You are told that on November 30, the correct inventory level was 145,730 units.
During the month of December, sales totaled 138,630 units, including 40,000 units shipped on
consignment to TED Co. A letter received from TED Co. indicates that as of December 31, it has sold 15,200
units and was still trying to sell the remainder.

A review of the December purchase orders to various suppliers shows the following:
Purchase Invoice Quantity in Date Date
Terms
Order Date Date Units Shipped Received
12/31/1A 01/02/1B 4,200 01/02/1B 01/05/1B FOB Destination
12/05/1A 01/02/1B 3,600 12/17/1A 12/22/1A FOB Destination
12/06/1A 01/03/1B 7,900 01/05/1B 01/07/1B FOB Shipping point
12/18/1A 12/20/1A 8,000 12/29/1A 01/02/1B FOB Shipping point
12/22/1A 01/05/1B 4,600 01/04/1B 01/06/1B FOB Destination
12/27/1A 01/07/1B 3,500 01/05/1B 01/07/1B FOB Destination
HIMYM, Inc. uses the “passing of legal title” for inventory recognition.
4. How many units of goods were purchased during December? ___________
5. How many units were sold during December? ___________
6. How many units should be included in HIMYM, Inc.’s inventory at December 31, 201A? ________

Case No. 4: HAMILTON

Hamilton Company engaged you to examine its books and records for the fiscal year ended June 30, 201B.
The company’s accountant has furnished you not only a copy of the trial balance as of June 30, 201B but
also a copy of the company’s balance sheet and income statement as ofsaid date. The following data
appears in the cost of goods sold section of the income statement:
Inventory, July 1, 201A P500,000
Add Purchases 3,600,000
Total goods available for sale 4,100,000
Less Inventory, June 30, 201B 700,000
Cost of goods sold P3,400,000
The beginning and ending inventories of the year were ascertained thru physical count except that no
reconciling items were considered. Even though the books have been closed, your working paper trial
balance shows all account with activity during the year. All purchases are FOB shipping point. The
company is on a periodic inventory basis.
In your examination of inventory cut-offs at the beginning and end of the year, you took note of the
following:
July 1, 201A
a. June invoices totaling to P130,000 were entered in the voucher register in June. The corresponding
goods are not received until July.
b. Invoices totaling P54,000 were entered in the voucher register in July, but the goods received during
June.

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June 30, 201B

c. Invoices with an aggregate value of P186,000 were entered in the voucher register in July, and the
goods were received in July. The invoices, however, were dated June.
d. June invoices totaling P74,000 were entered in the voucher register in June, but the goods were not
received until July.
e. Invoices totaling P108,000 (the corresponding goods for which were received in June) were entered
the voucher register, July.
f. Sales on account in the total amount of P176,000 were made on June 30 and the goods delivered at
that time. Book entries relating to the sales were made in June.
Based on the above and the result of your cut-off tests, answer the following:
7. How much is the adjusted Inventory as of July 1, 201A? _______________
8. How much is the adjusted Purchases for the fiscal year ended June 30, 201B? _______________
9. How much is the adjusted Inventory as of June 30, 201B? _______________
10. How much is the adjusted Cost of Goods Sold for the fiscal year ended June 30, 201B?
______________

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AUDIT OF INVESTMENTS
Case No. 1: STRAWBERRY CORP.
STRAWBERRY CORP. invested its excess cash in equity securities during 201A. The business model for
these investments is to profit from trading on price changes.
a. As of December 31, 201A, the equity investment portfolio consisted of the following:

Investment Quantity Cost Fair Value

Avocado, Inc. 1,000 shares P90,000 P126,000
Mango Co. 2,000 shares 240,000 252,000
Orange Corp. 2,000 shares 432,000 360,000
1. In the December 31, 201A, statement of financial position, what should be reported as carrying
amount of investment? _________________
2. In the 201A income statement, what amount should be reported as unrealized gain or loss?
___________
b. During the year 201A, STRAWBERRY Corp. sold 2,000 shares of Mango Co. for P229,200 and purchased
2,000 more shares of Avocado, Inc. and 1,000 shares of Grapes Company. On December 31, 201A,
Strawberry’s equity securities portfolio consisted of the following.

Investment Quantity Cost Fair Value

Avocado, Inc. 1,000 shares P90,000 P126,000
Avocado, Inc. 2,000 shares 198,000 240,000
Grapes Company 1,000 shares 96,000 72,000
Orange Corp. 2,000 shares 432,000 132,000
3. What is the gain or loss on the sale of Mango Co. investment? ____________
4. What is the carrying amount of the investments on December 31, 201A? ___________
5. What amount of unrealized gain or loss should be reported in the income statement for the year
ended December 31, 201A? ____________

c. During the year 202A, STRAWBERRY sold 3,000 shares of Avocado, Inc. for P239,400 and 500 shares
of Grapes Company at a loss of P16,200. On December 31, 201A, Strawberry’s equity investment
portfolio consisted of the following.

Investment Quantity Cost Fair Value

Grapes Company 500 shares P48,000 P36,000
Orange Corp. 2,000 shares 432,000 492,000
6. What should be reported as loss on sale of trading securities in 201A? ____________
7. What amount of unrealized gain or loss should be reported in the income statement for the year
ended December 31, 201A? _______________
8. In the December 31, 201A statement of financial position, what should be reported as carrying
amount of the trading securities? ______________

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Case No. 2: KIMCHI CORP.

KIMCHI COMPANY buys and sells securities expecting to earn profits on short-term differences in price.
During 201A, Kimchi Company purchased the following trading securities:

Security Cost Fair Value, Dec. 31, 201A

A P585,000 P675,000
B 900,000 486,000
C 1,980,000 2,034,000

Before any adjustments related to these trading securities, Kimchi Company had net income of
P2,700,000.

9. What is Kimchi’s net income after making any necessary trading security adjustments? ___________
10. What would Kimchi’s net income be if the fair value of security B were P855,000? ____________

Rubric for problem solving:

Performance Indicators Points
Correct accounts and amounts used 3
Computed final amounts are correct/balanced 2
Total 5

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