NAME:

SECTION

AUDIT OF INVENTORIES

PROBLEM 1

WALLNUT Co. asks you to review its December 31, 2020 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 659,840 of
inventory on hand at December 31, 2020.
2. Not included in the physical count of inventory is 31,260 of merchandise purchased on December
15 from Benggay. This merchandise was shipped FOB 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, FOB destination. This
merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale
on account for 34,800 on December 31. The merchandise cost 22,050, and Bubbly received it on
January 3.
4. Included in inventory was merchandise received from Doodle on December 31 with an invoice
price of 46,890. The merchandise was shipped FOB destination. The invoice, which has not yet
arrived, has not been recorded.
4. Not included in the inventory is 25,260 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 31,314 of inventory held by Wallnut on consignment from Jaka
Corporation. 
7. Included in inventory is merchandise sold to Simson FOB destination. This merchandise was
shipped after it was counted. The invoice was prepared and recorded as a sale for 56,700 on
December 31. The cost of this merchandise was 34,560, and Simson received the merchandise on
January 5. 
8. Excluded from inventory was a carton labeled "Please accept for credit." This carton contains
merchandise costing 4,500 which had been sold to a customer for 7,800. No entry had been made
to the books to reflect the return, but none of the returned merchandise seemed damaged.

 Required:

1. Compute the correct inventory balance for Wallnut at December 31, 2020

Inventory per count       P704,670

Transaction  2                            31,260

Transaction  3                        -

Transaction  4                        -

Transaction  5                            25,620

Transaction  6                            (31,314)
Transaction  7                            (34,560)

Transaction  8                            4,500

                                                 700,176

2. Prepare any correcting entries to adjust inventory and related accounts to their proper amounts at
December 31, 2020. Assume the books have not been closed.

Transaction 3

 SALES                            38,400

           ACCOUNTS RECEIVABLE           38,400

Transaction 4

PURCHASE                    46,890

           ACCOUNTS PAYABLE                 46,890

Transaction 8

SALES RETURN AND ALLOWANCE        7800

                     ACCOUNTS RECEIVABLE           7800

PROBLEM 2

In testing the sales cut-off for the BIG LOVE COMPANY in connection with an adult for the year ended
October 31, 2020, you find the following information.

A physical inventory was taken as of the close of business in  October 31, 2020. All customers are within
a three-day delivery area of the company's plant. The unadjusted balances of Sales and Inventories are
7,500,000 and 330,000, respectively.

Invoice Number FOB Terms Date Shipped Date Recorded Sales Cost
4471 Shipping point Oct. 31 Nov. 2 P 3,000 P2,700
4472 Destination Oct. 20 Oct. 31 7,500   6,000
4473 Shipping point Oct. 25 Oct. 31 5,400   3,600
4474 Destination Oct. 31 Oct. 29 12,600   9,300
4475 Destination Oct. 31 Nov. 2 27,600 24,000
4476 Shipping point Nov. 2 Oct. 23 19,500 15,300
4477 Shipping point Nov. 5 Nov. 6 22,500 17,400
4478 Destination Oct. 25 Nov. 3 11,700   6,000
4479 Shipping point Nov. 4 Oct. 31 25,800 24,600
4480 Destination Nov. 5 Nov. 2 15,000 12,000
Based on the foregoing information, compute the October 31, 2020, adjusted balances of the follow
accounts: 

1. Sales  P 7,461,300

2. Inventories P 363,300

PROBLEM 3

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 totalled 138,630 units including 40,010 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

12/31/20 01/02/21 4,200 01/02/21 01/05/21 FOB Destination

12/05/20 01/02/21 3,600 12/17/20 12/22/20 FOB Destination

12/06/20 01/03/21 7,900 01/05/21 01/07/21 FOB Shipping Point

12/18/20 12/20/20 8,000 12/29/20 01/02/21 FOB Shipping Point

12/22/20 01/05/21 4,600 01/04/21 01/06/21 FOB Destination

12/27/20 01/07/21 3,500 01/05/21 01/07/21 FOB Destination

Pig, Inc. uses the “passing of legal title” for inventory recognition.

 1.Goods purchased during December totalled 11,600 UNITS

2. How many units were sold during December? 113,830 UNITS 

3. How many units should be included in Pig, Inc.'s inventory at December 31, 2020?

  43,500 UNITS

4. Purchase cutoff procedures should be designed to test whether all inventory; (Choose the letter)

a. Purchased and received before year-end was paid for.

 5. The audit of year-end physical inventories should include steps to verify that the client's purchases and
sales 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;(Choose the letter)

a. Sale in the subsequent period.

-End