Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
INTERMEDIATE ACCOUNTING 1
Homework – Inventories
Name Date
(Family Name) (First Name) (Middle Name) Day/Time
Professo
r Score
Section Rating
Stud. No. Remarks
PART 1 (Inventoriable Costs)
(Adapted from Intermediate Accounting Textbook)
Presented below is a list of items that may or may not be reported as inventory in a company’s December 31
statement of financial statement. Indicate which of these items would typically be reported as inventory in the financial
statements. If an item should not be reported as inventory, indicate how it should be reported in the financial
statements.
To be reported or If not, how it should
No Given information not to be reported be reported in the FS
.
1. Goods sold on an installment basis (bad debts Cost of Goods Sold Income Statement
can be reasonably estimated)
2. Goods out on consignment at another company’s Inventory Not Reported
store
3. Goods purchased FOB shipping point that are in Inventory Balance Sheet
transit at December 31
4. Goods purchased FOB destination that are in Not Reported Not Reported
transit at December 31
5. Goods sold to another company, for which our
company has signed an agreement to Inventory Balance Sheet
repurchase at a set process that covers all costs
related to the inventory.
6. Goods sold where large returns are predictable Cost of Goods Sold Income Statement
7. Goods sold FOB shipping point that are in transit Cost of Goods Sold Income Statement
at December 31.
Inventory Balance Sheet
8. Freight charges on goods purchased.
9. Interest costs incurred for inventories that are Interest Expense Income Statement
routinely manufactured
10. Materials on hand not yet placed into production Inventory Balance Sheet
by a manufacturing firm.
Advertising Expense Income Statement
11. Costs incurred to advertise goods held for resale.
12. Office supplies Office Supplies Balance Sheet
13. Raw materials on which a manufacturing firm has
started production but which are not completely Inventory Balance Sheet
processed.
Inventory Balance Sheet
14. Factory supplies
15. Goods held on consignment from another Not Reported Not Reported
company
16. Costs identified with units completed by a Inventory Balance Sheet
manufacturing firm but not yet sold
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Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
Goods sold FOB destination that Inventory Balance Sheet
17. are in transit at December 31
PART 2 (Straight Problems)
Instructions: Compute the requirements of the following independent accounting problems involving cash and cash
equivalents. Write your final answers on the ANSWER SHEET below. For multiple choice questions, write only the
CAPITAL LETTER that corresponds to your answer. For non-multiple choice questions, encode on the answer sheet
the peso amounts that correspond to your answers.
ANSWER SHEET
1. 6.
2. 7.
3. 8.
4. 9.
5. 10.
Problem 1:
Monami Company uses the weighted average method to determine the cost of its inventory. Monami recorded the
following information pertaining to its inventory:
Units Units cost Total cost
Balance 1/1 160,000 60 P9,600,000
Sold on 1/15 140,000
Purchased on 1/31 80,000 90 7,200,000
1. What amount of inventory should Monami report in its January 31, 2021 statement of financial position using the
perpetual inventory system? A
Perpetual
A. P 8,400,000
B. P 7,000,000
C. P 8,400,000
D. P 7,000,000
2. What amount of inventory should Monami report in its January 31, 2021 statement of financial position using the
periodic inventory system? B
Periodic
A. P 7,000,000
B. P 8,400,000
C. P 7,500,000
D. P 7,500,000
Problem 2:
Riptide Company included the following items in its inventory on December 31, 2020:
Merchandise out on consignment, at sales price, including 25% markup on cost P 4,000,000
Goods purchased in transit, FOB destination 2,000,000
Goods held on consignment by Riptide Company 1,000,000
3. By what amount should the inventory at December 31, 2020 be reduced? B
a. P3,800,000
b. P2,000,000
c. P1,800,000
d. P1,000,000
Problem 3
Gumamela Company installs replacement siding, windows, and louvered glass doors for family homes. At December
31, 2020, the balance of inventory account was P502,000, and the allowance for inventory write down was P33,000.
The inventory cost and market data at December 31, 2020, are as follows:
Replacement Normal
Cost Cost Sales Price NRV Profit
Aluminum siding P 89,000 P 86,000 P 91,500 P 87,000 P 5,000
Mahogany siding 94,000 92,000 93,000 85,000 7,000
Louvered glass door 125,000 135,000 129,000 111,000 10,000
Glass windows 194,000 114,000 205,000 197,000 20,000
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Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
Total P 502,000 P 427,000 P 518,500 P 480,000 P 32,000
4. The correct balance of the inventory after any allowance for write down is C
a. P427,000
b. P486,500
c. P480,000
d. P477,000
Problem 4
Lucas Co. operates a ready-to-wear (RTW) department store in downtown Manila. Because of the observable pattern
between its cost and retail price, Lucas Co. used retail inventory method of estimating its inventory for interim
reporting as of and for the 3 months period ending 30 September 2020. The records of Lucas Co. shows the
following:
Beginning inventory at cost P 85,000
Beginning inventory at retail 106,250
Net purchases at cost 95,628
Net purchases at retail 139,880
Net mark up 25,000
Net mark down 5,500
Net sales 60,000
Sales discount 3,000
Sales returns 4,000
Sales allowance 2,000
Employee discount 5,000
Theft and shrinkage (normal) 1,500
5. Using FIFO retail inventory method, Lucas Co.’s ending inventory as of 30 September 2020 is B
a. P123,428
b. P116,478
c. P132,428
d. P114,678
Problem 5
Hunter Co. is a calendar-year retailer. Its year-end physical count of inventory on hand did not consider the effects of
the following transactions:
Goods with a cost of P50,000 were shipped by Hunter FOB shipping point on December 30 and were
tendered to and accepted by the buyer on January 4.
Goods with a cost of P40,000 were shipped FOB destination by a vendor on December 30 and were
tendered to and accepted by Hunter on January 4.
Goods were sold on the installment basis by Hunter. Installment receivables representing sales of goods
with a cost of P30,000 were reported at year-end. Hunter retains title to such goods until full payment is
made.
Goods with a cost of P20,000 were held on consignment for a vendor. These goods were excluded from the
count although they were sold in January.
6. If inventory based solely on the physical count of items on hand equaled P1 million. Hunter should report
inventory at year-end of ____________ 920,000
Problem 6
Henke Co. uses the retail inventory method to estimate its inventory for interim statement purposes. Data relating to
the computation of the inventory at July 31, 2020, are as follows:
Cost Retail
Inventory, 2/1/20 P 200,000 P 250,000
Purchases 1,000,000 1,575,000
Markups, net 175,000
Sales 1,750,000
Estimated normal shoplifting losses 20,000
Markdowns, net 110,000
7. Under the lower-of-cost-or-net realizable value method, Henke's estimated inventory at July 31, 2020 is A
A. P 72,000.
B. P 84,000.
C. P 96,000.
D. P 120,000.
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Far Eastern University
Institute of Accounts. Business and Finance
Department of Accountancy and Internal Auditing
Problem 7
Crane Sales Company uses the retail inventory method to value its merchandise inventory. The following information
is available for the current year:
Cost Retail
Beginning inventory P 30,000 P 50,000
Purchases 145,000 200,000
Freight-in 2,500 —
Net markups — 8,500
Net markdowns — 10,000
Employee discounts — 1,000
Sales — 205,000
8. If the ending inventory is to be valued at the lower-of-cost-or-net realizable value, what is the cost to retail ratio?
A. P 177,500 ÷ P 250,000
B. P 177,500 ÷ P 258,500 ANSWER
C. P 175,000 ÷ P 260,000
D. P 177,500 ÷ P 248,500
Problem 8
On January 1, a store had inventory of P 48,000. January purchases were P 46,000 and January sales were P
90,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit was 25% of cost. Merchandise
with a selling price of P 5,000 remained undamaged after the fire.
9. Compute the amount of the fire loss, assuming the store had no insurance coverage. -18,000 16,000
Problem 9
Vogts Company sells TVs. The perpetual inventory was stated as P 28,500 on the books at December 31, 2020. At
the close of the year, a new approach for compiling inventory was used and apparently a satisfactory cut-off for
preparation of financial statements was not made. Some events that occurred are as follows.
1. TVs shipped to a customer January 2, 2021 costing P 5,000 were included in inventory at December 31, 2020.
The sale was recorded in 2021.
2. TVs costing P 12,000 received December 30, 2020, were recorded as received on January 2, 2021.
3. TVs received during 2020 costing P 4,600 were recorded twice in the inventory account.
4. TVs shipped to a customer December 28, 2020, f.o.b. shipping point, which cost P 10,000, were not received by
the customer until January 2021. The TVs were included in the ending inventory.
5. TVs on hand that cost P 6,100 were never recorded on the books.
Instructions
Compute the correct inventory at December 31, 2020. 32,000
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