07 Inventories - Sample activities PDF

Preview

Summary

REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICEINVENTORIES Cagayan Company included the following items under inventories: Materials P 1,400, Advance for materials ordered 200, Goods in process 650, Unexpired insurance on inventories 60, Advertising catalogs and shipping boxes 150, Finished goods...

Description

Page 1 of 6

REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE INVENTORIES 1. Cagayan Company included the following items under inventories: Materials Advance for materials ordered Goods in process Unexpired insurance on inventories Advertising catalogs and shipping boxes Finished goods in factory Finished goods in company-owned retails store, including 50% profit on cost Finished goods in hands on consignees including 40% profit on sales Finished goods in transit to customers, shipped FOB destination, at cost Finished goods out on approval, at cost Unsalable finished goods, at cost Office supplies Materials in transit shipped FOB shipping point, excluding freight of P30,000 Goods held on consignment, at sales price, cost P150,000 How much is the correct amount of inventories? a. P5,610,000 b. P5,500,000

P 1,400,000 200,000 650,000 60,000 150,000 2,000,000 750,000 400,000 250,000 100,000 50,000 40,000 330,000 200,000

c. P5,375,000 d. P5,450,000

2. The Abulug Manufacturing Company reviewed its year-end inventory and found the following items: (a) A packing case containing a product costing P100,000 was standing in the shipping room when the physical inventory was taken. It was not included in the inventory because it was marked “Hold for shipping instructions.” The customer’s order was dated December 18, but the case was shipped and the costumer billed on January 10, 2006. (b) Merchandise costing P600,000 was received on December 28, 2005, and the invoice was recorded. The invoice was in the hands of the purchasing agent; it was marked “On consignment”. (c) Merchandise received on January 6, 2006, costing P700,000 was entered in purchase register on January 7. The invoice showed shipment was made FOB shipping point on December 31, 2005. Because it was not on hand during the inventory count, it was not included. (d) A special machine costing P200,000, fabricated to order for a particular customer, was finished in the shipping room on December 30. The customer was billed for P300,000 on that date and the machine was excluded from inventory although it was shipped January 4, 2006. (e) Merchandise costing P200,000 was received on January 6, 2006, and the related purchase invoice was recorded January 5. The invoice showed the shipment was made on December 29,2005, FOB destination. (f) Merchandise costing P150,000 was sold on an installment basis on December 15. The customer took possession of the goods on that date. The merchandise was included in inventory because Abulug still holds legal title. Historical experience suggests that full payment on installment sale is received approximately 99% of the time. (g) Goods costing P500,000 were sold and delivered on December 20. The goods were included in the inventory because the sale was accompanied by a purchase agreement requiring Abulug to buy back the inventory in February 2006.

Page 2 of 6

How much of these items should be included in the inventory balance at December 31, 2005? a. P1,300,000 c. P1,650,000 b. P 800,000 d. P1,050,000

3. The Alcala Company counted its ending inventory on December 31. None of the following items were included when the total amount of the company’s ending inventory was computed:    

P150,000 in goods located in Alcala’s warehouse that are on consignment from another company. P200,000 in goods that were sold by Alcala and shipped on December 30 and were in transit on December 31; the goods were received by the customer on January 2. Terms were FOB Destination. P300,000 in goods were purchased by Alcala and shipped on December 30 and were in transit on December 31; the goods were received by Alcala on January 2. Terms were FOB shipping point. P400,000 in goods were sold by Alcala and shipped on December 30 and were in transit on December 31; the goods were received by the customer on January 2. Terms were FOB shipping point.

The company’s reported inventory (before any corrections) was P2,000,000. What is the correct amount of the company’s inventory on December 31? a. P2,550,000 c. P2,500,000 b. P1,950,000 d. P2,700,000 4. Aparri Company included the following items in its inventory on December 31, 2005: Merchandise out on consignment, at sales price, including 25% markup on cost Goods purchased in transit, FOB destination Goods held on consignment by Aparri Company

P4,000,000 2,000,000 1,000,000

By what amount should the inventory at December 31, 2005 be reduced? a. P3,800,000 c. P1,800,000 b. P2,000,000 d. P1,000,000 5. Allapacan Company had the following consignment transactions during 2005: Inventory shipped on consignment to Benguet Company, consignee Freight paid by Allapacan Inventory received on consignment from Ifugao, consignor Freight paid by Ifugao

P600,000 50,000 800,000 50,000

No sales of consigned goods were made through December 31, 2005. In its December 31, 2005 balance sheet, Allapacan should include consigned inventory of a. P600,000 c. P 650,000 b. P700,000 d. P1,500,000 6. On June 1, 2005 Amulung Company sold merchandise with a list price of P5,000,000 to ABC. Amulung allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the sale was made FOB shipping point. Amulung prepaid P200,000 of delivery cost for ABC as an accommodation. On June 11, 2005, Amulung received from ABC full remittance of a. P3,420,000 c. P3,600,000 d. P3,800,000 b. P3,620,000

Page 3 of 6

7. Baggao Company’s accounts payable balance at December 31, 2005 was P8,000,000 before considering the following data: 

Goods shipped to Baggao FOB shipping point on December 15, 2005 were lost in transit. The invoice cost of P500,000 was not recorded by Baggao. On January 15, 2006, Baggao filed a P500,000 claim against the common carrier.



On December 30, 2005, a vendor authorized Baggao to return for full credit goods shipped and billed at P200,000 on December 15, 2005. The returned goods were shipped by Baggao on December 31, 2005. A P200,000 credit memo was received and recorded on January 5, 2006.

What should Baggao report as accounts payable on December 31, 2005? a. P8,300,000 c. P7,800,000 b. P8,500,000 d. P7,500,000 8. Ballesteros Company began operations late in 2004. For the first quarter ended March 31, 2005, Ballesteros made available the following information: Total merchandise purchased through March 15, recorded at net Merchandise inventory at December 31, 2004, at selling price

P4,900,000 1,500,000

All merchandise was acquired on credit and no payments have been made on accounts payable since the inception of the company. All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10, n/30. No sales were made in 2005. How much cash is required to eliminate the current balance in accounts payable? c. P6,400,000 a. P6,000,000 b. P5,900,000 d. P5,750,000 9. Calayan Company has determined its December 31, 2005 inventory on a FIFO basis at P9,500,000. Information pertaining to that inventory follows: Estimated selling price Estimated cost to complete and cost of disposal Normal profit margin Current replacement cost

P14,000,000 5,000,000 2,000,000 8,000,000

Calayan records losses that result from applying the lower of cost or market rule. At December 31, 2005, Calayan should report inventory at c. P9,000,000 a. P9,500,000 b. P8,000,000 d. P7,000,000 10.Claveria Company installs replacement siding, windows, and louvered glass doors for family homes. At December 31, 2005, the balance of raw materials inventory account was P502,000, and the allowance for inventory writedown was P33,000. The inventory cost and market data at December 31, 2005, are as follows: Cost

Replacement Cost

Sales Price

Net Realizable value

Normal Profit

Aluminum siding Mahogany siding Louvered glass door Glass windows Total

89,000 94,000

86,000 92,000

91,500 93,000

87,000 85,000

5,000 7,000

125,000 194,000 502,000

135,000 114,000 427,000

129,000 205,000 518,500

111,000 197,000 480,000

10,000 20,000 32,000

The correct balance of the raw materials inventory after any allowance for write down is a. P427,000 c. P480,000 d. P477,000 b. P486,500...