Title | 427459304 Audit of Inventories Roque 2018 |
---|---|
Course | Accountancy |
Institution | Immaculate Conception College |
Pages | 40 |
File Size | 991.6 KB |
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Problem 3-The TILL Corporation has adjusted and closed its books at the end of 2018. The company arrives at its inventory position by a physical count taken on December 31 of each year. In March 2019, the following errors were discovered:a. Merchandise that cost P7,500 was sold for P10,200 on Decemb...
Problem 3-1
The TILL Corporation has adjusted and closed its books at the end of 2018. The company arrives at its inventory position by a physical count taken on December 31 of each year. In March 2019, the following errors were discovered:
a. Merchandise that cost P7,500 was sold for P10,200 on December 30, 2018. The order was shipped December 31, 2018, with terms FOB shipping point. The merchandise was not included in the ending inventory. The sale was recorded on January 15, 2019, when the customer made payment on the sale.
b. On January 2, 2019, Till Corporation received merchandise that had been shipped to it on December 31, 2018. The terms of the purchase were FOB shipping point. Cost of the merchandise was P5,250. The purchase was recorded and the goods included in the inventory on January 2, 2019.
c. On January 8, 2019, merchandise that had been included in the ending inventory was returned to Till because the consignee had not been able to sell it. The cost of this merchandise was P3,600 with a selling price of P5,400.
d. Merchandise costing P2,250, located in a separate warehouse, was overlooked and excluded from the 2018 inventory count.
e. On December 27, 2018 Till Corporation purchased merchandise costing P3,525 from a supplier. The order was shipped Dece mber 28 (terms FOB destination) and was still “in transit” on December 31. Because the invoice was received on December 31, the purchase was recorded in 2018. The merchandise was not included in the inventory count.
f. The corporation failed to make an entry for purchase on account of P2,505 at the end of 2018, although it included this merchandise in the inventory count. The purchase was recorded when payment was made to the supplier in 2019.
g. The corporation included in its 2018 ending inventory merchandise with a cost of P4,050. This merchandise had been custom built and was being held according to the customer’s written request until the customer could come and pick up the merchandise. The sale, P5,475 was recorded in 2019.
Required: Give the entry in 2019 (2018 books are closed) to correct each error. Assume that the errors were made during 2019, all amounts are material, and the periodic inventory is used.
Solution 3-1
a. Sales
10,200
Retained Earnings
b. Merchandise inventory
10,200
5,250
Purchases
5,250
c. No entry necessary. Consigned goods should be included in the consignor’s (Till’s) inventory.
d. Merchandise inventory
2,250
Retained earnings
e. Purchases
2,250
3,525
Retained earnings
f. Retained earnings
3,525
2,505
Purchases
g. Sales
2,505
5,475
Merchandise inventory
4,050
Retained earnings
1,425
Problem 3-2
WALLNUT Co. asks you to review its December 31, 2018, inventory values and prepare the necessary adjustments to the books. The following information is given to you.
1. Wallnut uses the periodic method of recording inventory. A physical count reveals P704,670 of inventory on hand at December 31, 2018.
2. Not included in the physical count of inventory is P31,260 of merchandise purchased on December 15 from Benggay. This merchandise was shipped f.o.b. shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbly on December 30, f.o.b. destination. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale on account for P38,400 on December 31. The merchandise cost P22,050, and Bubb ly received it on January 3.
4. Included in inventory was merchandise received from Doodle on December 31 with an invoice price of P46,890. The merchandise was shipped f.o.b. destination. The invoice, which has not yet arrived, has not been recorded.
5. Not included in inventory is P 25,620 of merchandise purchased from Maundy Company. This merchandise was received on December 31 after the inventory had been counted. The invoice was received and recorded on December 30.
6. Included in inventory was P31,314 of inventory held by Wallnut on consignment from Jaka Corporation.
7. Included in inventory is merchandise sold to Simson fob shipping point. This merchandise was shipped after it counted. The invoice was prepared and recorded as a sale for P56,700 on December 31. The cost of this merchandiseP34,560, and Simson received the merc handise on January 5.
8. Excluded from inventory was a carton labeled "Please accept for credit." This carton contains merchandise costing P4,500 which had been sold to a customer for P 7,800. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged.
Required: a.
Compute the correct inventory balance for Wallnut at December 31, 2018.
b. Prepare any correcting entries to adjust inventory and related accounts to their proper amounts at December 31, 2018. Assume the books have not been closed.
Solution 3-2
a. Inventory per count Transaction
2
704,670 31,260
3
-
4
-
5
25,620
6
(31,314)
7
(34,560)
8
4,500
Inventory as corrected
b. ADJUSTING JOURNAL ENTRIES December 31, 2018
P700,176
Transaction 3 Sales
38,400
Accounts Receivable
38,400
Transaction 4 Purchases
46,890
Accounts Payable
46,890
Transaction 8 Sales Return and allowances
7,800
Accounts receivable
7,800
Problem 3-3
In testing the sales cut-off for the BIG LOVE COMPANY in connection with an audit for the year ended October 31, 2018, you find the following information.
A physical inventory was taken as of the close of business on October 31, 2018. 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
Number
FOB Terms
Date
Shipped Oct. 20
Recorded Sales
6671
Destination
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
6679
Shipping point Nov. 4
6680
Destination
Oct. 25
Oct. 31
Nov. 3 Oct. 31
Nov. 5
P3,000
Cost
11,700 25,800
Nov. 2
P2,700
6,000 24,600
15,000
12,000
Based on the foregoing information, compute the October 31, 2018 adjusted balances of the following accounts:
1. Sales A. P7,461,300
C. P7,499,600
B. P7,455,900
D. P4, 487,100
2. Inventories A. P354,000
C. P348,000
B. P363,300
D. P357,300
Solutions 3-3 Unadjusted balances Invoice No. 6672 6674
P7,500,000
P330,000
7,500 (12,600) (9,300)
-
6675
-
6676
(19,500)
24,000 -
6678
11,700
-
6679
(25,800)
-__
Adjusted balances
P7,461,300
1. Sales
P363,300
P7,461,300
Answer: A
2. Inventories
P363,300
Answer: B
Problem 3-4
You are conducting a financial statement audit of the BEVERLY HILLS CORP. for the year ended December 31, 2018. You have observed the taking of physical inventory and have noted that all merchandise actually received up to the close of business on December 28, 2018, has been recorded on the inventory sheets. The total invoice cost of the items included in the physical count is P300,000.
The following purchase invoices have been recorded in the Purchases Journal as follows:
December 2018 Invoice
Invoice
Date
Number
Amount Date
FOB Term
Received
251
PI0,248
Dec. 23
Destination
Dec. 24
252
8,136
Dec. 23
Destination
Dec. 29
253
3,123
Dec. 26
Shipping point Dec. 30
254
12,600
Dec. 26
Shipping point Jan. 5
255
13,833
Jan. 2
Destination
Dec. 31
256
6,309
Dec. 31
Destination
Jan. 4
257
3,486
Dec. 27
Shipping point Dec. 21
258
21,162
Jan. 8
Shipping point Jan. 2
259
34,866
Dec. 22
Destination
Dec. 28
260
11,331
Dec. 28
Destination
Dec. 27
January 2019 261
P3,672
Dec. 28
Destination
Jan. 4
262
11,391
Dec. 30
Destination
Dec. 28
263
17,712
Dec. 29
Shipping point Dec. 31
264
14,700
Jan. 2
Shipping point Jan. 5
265
41,400
Dec. 28
Shipping point Jan. 4
266
17,877
Dec. 30
Destination
Jan. 6
Required: 1.Auditor's adjusting entries, if any, required by the above information. 2.Show the detailed composition of the value of the inventory to be used on the financial statements. Transportation-in charges on purchases averaged 6% during the year and are to be included in the inventory valuation.
Solution 3-4
1. ADJUSTING ENTRIES December 31, 2018
a. Accounts payable
27,471
Purchases
27,471
Invoice no. 256 258
P6,309 21,162
Total
27,271
b. Purchases
70,503
Accounts Payable
Invoice no. 262
70,503
P11,391
263
17,712
264
41,400
Total
P70,503
c. Freight- in
3,240
Estimated freight- in payable
3,240
In transit Invoice no. 254
12,600
265
41,400
Total Average freight in
54,000 x6% 3,240
2. Balance per client at invoice cost Add: Invoice No. 252
P300,000 P8,136
253
3,123
254
12,600
255
13,833
263
17,712
265
41,400
96,804
Corrected inventory at invoice cost
P396,804
Add: Average freight - in (6% x P396,804)
23,808
Adjusted inventory
P420,612
Problem 3-5
The GOAT COMPANY reviewed its inventories and found the following items:
1. In the shipping room was a product costing P 13,400 when the physical count was taken. Because it was marked "Hold for shipping instructions," it was not included in the count. The customer order was dated December 15, but the product was shipped and the customer billed on January 4, 2019.
2. On December 27, 2018, merchandise costing P 11,648 was received and recorded. The invoice accompanying the merchandise was marked "on consignment."
3. The company received merchandise costing P4,625 on January 2' 2 019. The invoice, which was recorded on January 3, 2019, showed shipment was made under FOB shipping point on December 31, 2018. The merchandise was not included in the inventory because it was not on hand when the physical count was taken.
4. A product, fabricated to order for a particular customer, completed and in the shipping room on December 31. Although it was shipped on January 5, 2019, the customer was billed on December 31, 2018, and it was excluded from the inventory.
5. Merchandise costing P16,666 was received on January 5, 2019 and the related purchase invoice was recorded January 6. The shipment of this merchandise was made on December 31, 2018 FOB destination.
6. A product costing P 150,000 was sold on an installment basis on December 10, 2018. It was delivered to the customer on that date. The product was included in inventory because Goat still holds legal title. The company's experience suggests that full payment on installment sales is reasonably assured.
7. An item costing P65,000 was sold and delivered to the customer on December 29, 2018. The goods were included in the inventory because the sale was with a repurchase agreement that requires Goat to buy back the inventory on January 15, 2019.
Indicate which of the above items are to be included in the inventory balance at December 31, 2018. State your reasons for the treatment you suggest.
Solution 3-5
1.
Included - Merchandise, except "special orders", should be included in the inventory until shipped.
2.
Excluded - Goat Company does not possess legal title because the merchandise was received on a consignment basis.
3. Included - Because the purchase was made under FOB shipping point term, the merchandise should be included in the inventory on the shipping date.
4.
Excluded - A product that is manufactured for a particular customer (special order) is considered sold upon its completion.
5, Excluded - The merchandise was purchased under FOB destination term and was not received until January 5, 2019.
6. Excluded - The sale is recognized even though legal title has not passed.
7, Included - This is actually a loan transaction with the inventory as collateral.
PROB 6
The management of PIG, 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 AA Corp. A letter received from AA 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 ORDER DATE
INVOICE DATE
QUANTITY IN UNITS
DATE SHIPPED
DATE RECEIVED
TERMS
12/31/18
01/02/19
4,200
01/02/19
01/05/19
12/05/18
01/02/19
3,600
12/17/18
12/22/18
FOB Destination FOB Destination
12/06/18
01/03/19
7,900
01/05/19
01/07/19
12/18/18
12/20/18
8,000
12/29/18
01/02/19
12/22/18
01/05/19
4,600
01/04/19
01/06/19
12/27/18
01/07/19
3,500
01/05/19
01/07/19
FOB Shipping point FOB Shipping point FOB Destination FOB Destination
1. Goods purchased during December C. 19,500 totaledunits A. 11,600 unitsD. 8,000 units B. 15,800 units
2. How many units were sold during C. December?98,630 units A. 138,630 units D. 153,830 units B. 113,830 units
3. How many units should be included in Pig, Inc.'s inventory at December 31, 2018? A. 18,700 unitsC. 43,500 units B. 39,900 unitsD. 47,700 units
4. Purchase cutoffprocedures should be designed to test whether all inventory A. Purchased and received before year-end was paid for. B. Ordered before year-end was received. C. Purchased and received before year-end was recorded. D. Owned by the company is in the possession of the company at year-end. 5. The audit of year-end physical inventories should include steps to verify that the client's purchases and s ales cutoffs were adequate• The* audit steps should be designed to detect whether merchandise included in the physical count at year-end was not recorded as a A. Sale in the subsequent period. B. Purchase in the current period. C. Sale in the current period. D. Purchase return in the subsequent period.
SOLUTION 3-6
Inventory Quantity, Nov. 30
145,730
Add: December purchases PO DATE: 12.05.18 Purchase under FOB Destination term; received 12.22.18
3,600
12.18.18 Purchased under FOB Shipping point term; shipped 12.29.18
8,000
Units available for sale Less: Unit sold in December: Consignment sales
11,600 157,330
15,200
Other sales (138,600-40,000)
98,630
Inventory quality, Dec. 31
113,830 43,500
1. Goods purchased in December Answer: A 2. Goods sold in December Answer: B 3. Inventory Quantity Answer: C 4. Purchased ans received before year end was recorded Answer: C PROB 7 The following audited balanced pertain to OWL COMPANY
ACCOUNTS PAYABLE: January 1, 2018 December 31, 2018 INVENTORY BALANCE: January 1, 2018 December 31, 2018 COST OF GOODS SOLD-2018
P286,924 737,824 815,386 488,874 1,859,082
How much was paid by Owl company to its suppliers in 2018?
A. B. C. D.
2,636,494 1,081,670 1,734,694 1,983,470
SOLUTION:
COST OF GOODS SOLD-2018 Add: Inventory, Dec. 31, 2018 Goods available for sale Less: Inventory, Jan. 1, 2018 Purchases Add: Accounts payable, Jan. 1,2018 Total Less: Accounts payable, December 31, 2018 Amount paid to suppliers in 2018
P1,859,082 488,874 2,347,956 815,386 1,532,570 286,924 1,819,494 737,824 P1,081,670 (B)
PROBLEM 8 The following information was provided by the bookkeeper of COW, INC.
1. Sales for the month of June totalled 286,000 units 2. The following purchases was made on June: Date: Quantity Unit Cost June 4 50,000 P13 8 62,500 12.50 11 75,000 12 24 70,000 12.40 3. There were 108,500 units on hand on June 1 with a total...