Chapter 4 - Inventories

CHAPTER 4
INVENTORIES

PROBLEMS

4-1 (Crossings Company)

Invoice price (150,000 x 0.80) P 120,000
Freight charge 2,500
Total cost of merchandise purchase P 122,500

4-2 (Orient Trading)

Reported inventory P 9,500,000
Goods held on consignment ( 500,000)
Mark up on goods out on consignment
Sales price 600,000
Cost (600,000÷ 1.5) 400,000 ( 200,000)
Correct inventory P 8,800,000

4.3 (Tintin Company)

Physical inventory at December 31, 2009 P 172,000
Merchandise in transit shipped FOB shipping point 31,500
Merchandise sold FOB destination still in transit 12,500
Correct inventory at December 31, 2009 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 P 562,500
Adjustments:
a. Goods out on consignment 110,000
b. Goods purchased in transit FOB shipping point 27,000
c. Goods sold in transit FOB shipping point
included in inventory ( 85,000)
d. Goods sold in transit FOB destination
not included in inventory 26,000
g. Goods sold in transit FOB destination
not included in inventory 37,000
Correct inventory P 677,500

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4.6 (Mega Company)

Cost of Ending
Inventory Cost of Goods Sold Gross Profit
FIFO 3,561.25 4,495.00 1,930.00
Weighted average 3,388.55 4,667.70 1,757.30
Moving average 3,426.45 4,629.80 1,795.20

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 4,495.00

Gross profit:
Sales 6,425.00
Less cost of goods sold 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 x 305 3,388.55

Cost of goods sold:

Cost of goods available for sale 8,056.25
Less ending inventory 3,388.55 4,667.70

Gross profit:
Sales 6,425.00
Less cost of goods sold 4,667.70 1,757.30

Moving average
Cost of ending inventory:
Inventory, January 1 250 x 10.50 = 2,625.00
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
Total 550 x 11.24 = 6,180.25
Sale, September 17 (245 x 11.24 = 2,753.80)
Balance 305 x 11.24 = 3,426.45

Cost of goods sold:

Cost of goods available for sale 8,056.25
Less ending inventory 3,426.45 4,629.80

Gross profit:
Sales 6,425.00
Less cost of goods sold 4,629.80 1,795.20

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4.7 (Landmark Enterprises)

a. Cost of ending inventory
1/1 2,400 @ 10.75 25,800
1/5 1,900 @ 11.35 21,565
4,300 @ 11.0247,365
1/8 2,200 @ 11.02 24,244
2,100 @ 11.0123,121
1/24 3,800 @ 11.80 44,840
5,900 @ 11.5267,961
1/30 3,600 @ 11.52 41,472
2,300 @ 11.52 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) ÷ 8,100
Weighted average cost per unit P 11,38
Number of units in ending inventory x 2,300
Cost of ending inventory P26,174

4-8 (Chic Department Store)

a. FIFO cost basis
Cost Retail
Inventory, June 1 P 400,000 P 750,000
Purchases 2,400,000 4,000,000
Available for sale P2,800,000 P4,750,000
Sales 3,500,000
Inventory, June 30 at retail P1,250,000
Cost percentage (2,400,000/4,000,000) 60%
Estimated cost of inventory 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 P1,250,000
Cost percentage (2,800,000/4,750,000) 58.95%
Estimated cost of inventory 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 (Rockwell Club, Inc.)

Amount Units
Cost of sales:
Sales (160,500 x 12) 1,926,000
Less gross profit 738,600 P1,187,400 160,500
Add ending inventory
42,000 x 7.40 310,800
3,000 x 7.20 21,600 332,400 45,000
Available for sale P1,519,800 205,500
Deduct purchases 1,150,050 154,500
Inventory, January 1 P 369,750 51,000

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Average cost per unit (369,750 ÷ 51,000 units) P 7.25

4.10 (DEC Company)
Merchandise inventory, January 1, 2009 P 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 P 800,000
Physical inventory on December 31, 2009 750,000
Estimated cost of the missing inventory P 50,000

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 P133,500

4-12 (Manel’s Company)

Merchandise inventory, January 1 P2,000,000
Purchases (1,000,000 + 40,000 – 60,000) 980,000
Available for sale P2,980,000
Estimated cost of goods sold (3,200,000 x 70%) 2,240,000
Estimated ending inventory P 740,000
Less goods undamaged located in showroom (200,000 + 80,000) 280,000
Estimated cost of merchandise destroyed by the flood P 460,000

4-13 (Old Rose Company)

Inventory, January 1, 2009 P1,000,000
Purchases 800,000
Freight in 20,000
Cost of goods available for sale P1,820,000
Estimated cost of goods sold (2,200,000 – 50,000) x 70% 1,505,000
Estimated cost of ending inventory P 315,000
Inventory per actual count 160,000
Shortage in inventory P 155,000

4-14 (Blazing Red Company)

Inventory, January 1, 2009 P 575,400
Purchases:
Payments to suppliers P1,950,000
Accounts Payable, 8/28/07 491,400
Accounts Payable, 1/1/06 ( 352,560) 2,088,840
Cost of goods available for sale P2,664,240
Estimated cost of goods sold:
Collections from customers P3,015,200
Accounts Receivable, 8/28/07 515,560
Accounts Receivable, 1/1/07 ( 522,360)
Sales P3,008,400
Cost percentage 70% 2,105,880
Estimated cost of ending inventory P 558,360
Less undamaged goods:
Goods out on consignment P 195,000
Goods in transit 69,500 264,500

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Estimated inventory fire loss P 293,860

4.15 (London Company
Retail
Beginning Inventory P 60,000
Purchases 220,000
Markups 20,000
Markdowns (40,000)
Total P260,000
Sales Revenue (80,000)
Ending Inventory, at retail P80,000
Cost to retail ratio:
160,000
220,000+20,000-40,000 80%
Ending Inventory, at estimated cost P64,000

4-16 (Alemars Drygoods, Inc.)

Retail
Beginning Inventory P1,050,000
Purchases 735,000
Markups (1,600 x 50) 80,000
Markup cancellations (300 x 50) ( 15,000)
Markdowns (105,000)
Total P1,745,000
Sales Revenue (1,050,000)
Ending Inventory, at retail P 695,000
Physical inventory on January 31, 2009 665,000
Inventory shortage at retail value P 30,000

4-17 (Uniwide Sales)

Cost Retail
Beginning Inventory P184,000 P202,000
Purchases 339,380 458,000
Purchase Allowance ( 11,000)
Freight In 9,000
Departmental Transfers In 2,000 3,000
Additional Markups 12,000
Markup Cancellations ( 2,500)
Markdowns (6,000 – 4,500) _________ (1,500)
Total P523,380 P671,000
Sales (374,000)
Inventory Shortage ( 7,000)
Ending Inventory, at retail P290,000
Cost to retail ratio (523,380/671,000) 78%
Ending Inventory, at estimated cost P226,200

4-18 (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 P200,000
Net realizable value (204,000 – 10,000) 194,000

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Loss 6,000
4-20 (Powder Blue Company)
Inventory, January 1 P1,400,000
Purchases during the year 6,600,000
Cost of goods available for sale P8,000,000
Less Inventory, December 31 1,200,000
Cost of goods sold P6,800,000

4-21 (Rustan’s Trading)

Product Cost NRV Lower Quantity Amount
A 102 105 102 4,000 P408,000
B 45 42 42 6,000 252,000
C 24 22 22 5,500 121,000
D 9 10 9 7,200 64,800
Total P845,800

4-22 (Sta. Lucia Company)

2005 2008 2009
Reported net income under average P3,600,000 P5,000,000 P7,000,000
method
Difference in inventory using FIFO
Beginning inventory - ( 40,000) (120,000)
Ending inventory 40,00 120,000 650,000
0
Net income under FIFO basis P3,640,000 P5,080,000 P7,530,000

4-23 (Grand Central, Inc.)

Net income reported for 2009 P658,000
Adjustments:
Overstatement of beginning inventory 71,000
Understatement of ending inventory 96,000
Cash advance for future manufacture and delivery of goods
credited to sales revenue (60,000)
Correct net income for 2009 P765,000

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Chapter 4 - Inventories

MULTIPLE CHOICE QUESTIONS

Theory
MC1 d MC6 c MC11 a MC16 d
MC2 a MC7 a MC12 c MC17 c
MC3 d MC8 d MC13 a MC18 d
MC4 a MC9 d MC14 d MC19 d
MC5 a MC10 a MC15 d MC20 a

MULTIPLE CHOICE QUESTIONS

Problems
MC21 d 90,000 x .80 x ..90 = 64,800; 64,800 + 5,000 = 69,800
MC22 d 1,500,000 + 50,000 = 1,550,000
MC23 b 150,000 x .85 x .90 x .95 = 109,012.50
MC24 a 109,012.50 x .98 = 106,832.25
MC25 b (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

MC26 a 5,000,000 + 80,000 + 800,000 – 25,000 = 5,855,000

MC27 a 77,500 + 6,000 = 83,500
MC28 b 3,280,000 + 900,000– 80,000 = 4,100,000 x 3% =123,000; 123,000–
27,000=96,000
MC29 c 550,000 + 90,000 + 380,000 + 450,000 + (150,000 x .80) = 1,590,000
MC30 c 104,000 ÷ 1.3 = 80,000; 80,000 x .30 = 24,000
24,000 + 56,000 + (32,500 – 25,000) = 87,500
MC31 b (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
MC32 c (1,600 x 8) + (4,800 x 9.60) = 58,880; 58,880 ÷ 6,400 = 9.20
MC33 c 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
MC34 b 600,000 + 1,500,000 – (2,240,000 ÷ 1.4) = 500,000
MC35 c 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
MC36 a 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
MC37 c 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

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MC38 d 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
MC39 d 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
MC40 a 376,860 – 320,500 = 56,360; 56,360 – 39,390 = 16,970; 16,970 x 70% = 11,879
MC41 a Repeated problem. Please see Problem 4-15.
MC42 b Confidence: cost 22; NRV = 30 – 3 = 27; lower is 22
Positive attitude: cost 55; NRV = 80 – 28 = 52; lower is 52

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