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    Review of Financial Accounting Theory and Practice

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    Mary Jullianne Caile Salcedo
    1. Benguet Company's accounting records showed a discrepancy between the physical inventory count and expected inventory based on purchases and sales. The estimated cost of missing inventory is P500,000. 2. Atok Corporation lost most of its inventory in a warehouse fire before year-end inventory count. Based on provided financial data, the estimated inventory loss from the fire is P856,200. 3. Bakun Company's work-in-process inventory was destroyed by fire on June 1, 2005. Using provided financial data and an agreed upon average gross profit rate, the estimated value of the destroyed work-in-process inventory is P185,000.

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    Review of Financial Accounting Theory and Practice

    Uploaded by

    Mary Jullianne Caile Salcedo
    120 views2 pages
    1. Benguet Company's accounting records showed a discrepancy between the physical inventory count and expected inventory based on purchases and sales. The estimated cost of missing inventory is P500,000. 2. Atok Corporation lost most of its inventory in a warehouse fire before year-end inventory count. Based on provided financial data, the estimated inventory loss from the fire is P856,200. 3. Bakun Company's work-in-process inventory was destroyed by fire on June 1, 2005. Using provided financial data and an agreed upon average gross profit rate, the estimated value of the destroyed work-in-process inventory is P185,000.

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    1. Benguet Company's accounting records showed a discrepancy between the physical inventory count and expected inventory based on purchases and sales. The estimated cost of missing inventory is P500,000. 2. Atok Corporation lost most of its inventory in a warehouse fire before year-end inventory count. Based on provided financial data, the estimated inventory loss from the fire is P856,200. 3. Bakun Company's work-in-process inventory was destroyed by fire on June 1, 2005. Using provided financial data and an agreed upon average gross profit rate, the estimated value of the destroyed work-in-process inventory is P185,000.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    120 views2 pages

    Review of Financial Accounting Theory and Practice

    Uploaded by

    Mary Jullianne Caile Salcedo
    1. Benguet Company's accounting records showed a discrepancy between the physical inventory count and expected inventory based on purchases and sales. The estimated cost of missing inventory is P500,000. 2. Atok Corporation lost most of its inventory in a warehouse fire before year-end inventory count. Based on provided financial data, the estimated inventory loss from the fire is P856,200. 3. Bakun Company's work-in-process inventory was destroyed by fire on June 1, 2005. Using provided financial data and an agreed upon average gross profit rate, the estimated value of the destroyed work-in-process inventory is P185,000.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 2

    Page 1 of 2

    REVIEW OF FINANCIAL ACCOUNTING THEORY AND PRACTICE


    INVENTORY ESTIMATION

    1. Benguet Company’s accounting records indicated the following for 2005:

    Inventory, January 1 P6,000,000


    Purchases 20,000,000
    Sales 30,000,000

    A physical inventory taken on December 31, 2005 resulted in an ending inventory of


    P4,500,000. The gross profit on sales remained constant at 30% in recent years.
    Benguet suspects some inventory may have been taken by a new employee. At
    December 31, 2005 what is the estimated cost of missing inventory?
    a. P5,000,000 c. P500,000
    b. P4,500,000 d. P 0

    2. The Atok Corporation was organized on January 1, 2004. On December 31, 2005, the
    corporation lost most of its inventory in a warehouse fire just before the year-end count
    of inventory was to take place. Data from the records disclosed the following:

    2004 2005
    Beginning inventory, January 1 P 0 P1,020,000
    Purchases 4,300,000 3,460,000
    Purchases returns and allowances 230,600 323,000
    Sales 3,940,000 4,180,000
    Sales returns and allowances 80,000 100,000

    On January 1, 2005, the Corporation’s pricing policy was changed so that the gross
    profit rate would be three percentage points higher than the one earned in 2004.

    Salvaged undamaged merchandise was marked to sell at P120,000 while damaged


    merchandise was marked to sell at P80,000 had an estimated realizable value of
    P18,000.

    How much is the inventory loss due to fire?


    a. P918,200 c. P856,200
    b. P947,000 d. P824,600

    3. The work-in-process inventory of Bakun Company were completely destroyed by fire


    on June 1, 2005. You were able to establish physical inventory figures as follows:
    January 1, 2005 June 1, 2005
    Raw materials P 60,000 P120,000
    Work-in-process 200,000 -
    Finished goods 280,000 240,000
    Sales from January 1 to May 31, were P546,750. Purchases of raw materials were
    P200,000 and freight on purchases, P30,000. Direct labor during the period was
    P160,000. It was agreed with insurance adjusters than an average gross profit rate of
    35% based on cost be used and that direct labor cost was 160% of factory overhead.

    The work in process inventory destroyed as computed by the adjuster


    a. P314,612 c. P185,000
    b. P366,000 d. P265,000
    Page 2 of 2

    4. Tublay uses the retail inventory method to approximate the lower of average cost or
    market. The following information is available for the current year:
    Cost Retail
    Beginning inventory P 1,300,000 P 2,600,000
    Purchases 18,000,000 29,200,000
    Freight in 400,000
    Purchase returns 600,000 1,000,000
    Purchase allowances 300,000
    Departmental transfer in 400,000 600,000
    Net markups 600,000
    Net markdowns 2,000,000
    Sales 24,400,000
    Sales discounts 200,000
    Employee discounts 600,000

    What should be reported as the estimated cost of inventory at the end of the current
    year?
    a. P3,120,000 c. P3,000,000
    b. P3,200,000 d. P3,840,000

    5. Trinidad Company uses the average cost retail method to estimate its inventory. Data
    relating to the inventory at December 31, 2005 are:
    Cost Retail
    Inventory, January 1 P 2,000,000 P3,000,000
    Purchases 10,600,000 14,000,000
    Net markups 1,600,000
    Net markdowns 600,000
    Sales 12,000,000
    Estimated normal shoplifting losses 400,000
    Estimated normal shrinkage is 5% of sales

    Trinidad’s cost of goods sold for the year ended December 31, 2004 is
    a. P9,100,000 c. P8,400,000
    b. P8,680,000 d. P7,700,000

    6. Mankayan Company uses the first-in, first-out retail method of inventory valuation. The
    following information is available:

    Cost Retail
    Beginning inventory P 2,500,000 4,000,000
    Purchases 13,500,000 16,000,000
    Net markups 3,000,000
    Net markdowns 1,000,000
    Sales 15,000,000

    What would be the estimated cost of the ending inventory?


    a. P7,000,000 c. P5,110,000
    b. P5,250,000 d. P4,750,000

    - end -

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