Problem 1 - Include or Exclude in the Inventory

Hamster Corporation seeks your help in determining the amount of inventory that will be reported on the company’s
statement of financial position. Identify by writing a checkmark on the appropriate column whether each of the following
will be included in the inventory cost.

Items of Inventory Include Exclude

a. Goods displayed in the store /
b. Goods stocked in the warehouse, not covered by any sales contract /
c. Goods purchased, in transit, shipped FOB seller /
d. Goods purchased, in transit, shipped FOB destination /
e. Freight cost on goods received, goods are still unsold /
f. Goods held on consignment /
g. Goods out on consignment /
h. Goods out to customers on approval- Seller /
i. Goods in the hands of traveling salesmen /
j. Goods sold with a buyback arrangement for the full selling price and other costs /
incurred by the buyer
k. Unused factory supplies and indirect materials /
l. Goods which require additional processing /
m. Direct materials stocked in the warehouse /
n. Storage costs of goods completed /
o. Insurance premiums paid on stocked goods /
p. Goods completed, manufactured to customer’s specification, awaiting /
instruction for delivery by the customer
q. Freight paid on goods sold /
r. Unused supplies for administrative purposes /
s. Unused store supplies /
t. Goods sold with a right to return granted to buyers, amount of return is /
reasonably predictable
u. Goods sold under FAS, at the port designated by the buyer /
v. Goods at the port, purchased CIF /

Problem 2
Crossings Company regularly buys merchandise from Best Company and is allowed trade discounts of 20% and 10%
from the list price. Crossings made a purchase on March 20, 2020 and received an invoice with a list price of 150,000, a
freight charge of 2,500 and payment terms of net 30 days.

Required: What is the total cost of merchandise purchases? 110,500

Invoice price (150,000x80%x90%) 108,000
Freight Charge 2500
to

Problem 3
Jane, Inc. had 10,200 units on April 30, 2020, based on physical count on goods on that date. The following items have
not yet been recorded as purchases and sales as of April 30.
No. Transaction Terms Number of Units
1 Purchase FOB Shipping Point 250
2 Purchase FOB Destination 300
3 Sale FOB Shipping Point 650
4 Sale FOB Destination 500

Items 1-4 were shipped by the seller April 30, 2020 and received by the buyer May 5, 2020.
Required: How many units should be considered as inventory at the end of April 2020? 10,950

Problem 4
The Orient Trading’s inventory at the end of 2020 is 9,500,000 before considering the following information.
Included in the amount are the following items:
I. Merchandise in transit, purchase FOB shipping point, 680,000
II. Merchandise in transit, purchase FOB destination, with invoice cost of 420,000
III. Goods held on consignment, 500,000
IV. Goods out on consignment, at cost plus 50% mark-up on cost plus 10,000 delivery charge, 610,000

The 9,500,000 does not include the following items:

a. Merchandise in transit to customers, FOB shipping point, at selling price of 540,000, which includes a 40% mark-up on
selling price Seller
b. Merchandise in transit to customers, FOB destination at selling price of 400,000, which includes a 40% mark-up on
selling price
c. Merchandise purchased in transit, “Free Alongside”, costing 150,000
d. Merchandise sold, in transit “Cost, Insurance, Freight”, charged to the buyer, with selling price of 180,000 and cost of
120,000

Required: What is the correct amount of inventory?

Problem 5
The physical inventory on December 31, 2020 of Tintin Co. showed merchandise at 172,000. You discovered that the
following items were excluded from this amount:
I. Merchandise costing 31,500 shipped by a vendor FOB shipping point on December 31, 2020 and received by Tintin on
January 5, 2021.
II. Merchandise costing of 40,000 shipped by a vendor FOB destination on December 30, 2020 and received by Tintin on
January 4, 2021.
III. Merchandise costing 12,500 which was shipped FOB destination to a customer on December 29, 2020. The customer
expected to receive the merchandise on January 6, 2021.
IV. Merchandise costing 28,500 which was shipped FOB shipping point to a customer on December 29, 2020. The goods
are scheduled to arrive at the destination point on January 2, 2021.

Required: Correct amount of inventory at December 31, 2020

Problem 6
Centerpoint Inc. is preparing its 2020 year-end financial statements. Prior to any adjustments, inventory is valued at
562,500. The following information has been found relating to certain inventory transactions.
a. Goods valued at 110,000 are on consignment with a customer. These goods are not included in the 562,500 inventory.

b. Goods costing 27,000 were received from a vendor on January 5, 2021. The related invoice was received and recorded
on January 12, 2021. The goods were shipped on December 31, 2020, terms FOB shipping point.

c. Goods costing 85,000 were shipped on December 31, 2020 and were delivered to the customer on January 2, 2021. The
terms of the sale were FOB shipping point. The goods were included in ending inventory of 2020 even though the sale
was recorded in 2020.
d. A 35,000 shipment of goods to a customer on December 31, 2020, terms FOB destination was not included in the year-
end inventory. The goods cost 26,000 and were delivered to the customer on January 8, 2021. The sale was properly
recorded in 2021.

e. An invoice for goods costing 35,000 was received and recorded as a purchase on December 31, 2020. The related
goods, shipped FOB destination, were received on January 2, 2021, and thus were not included in the physical inventory.
f. Goods valued at 65,000 are on consignment from a vendor. These goods are not included in the year-end inventory
figure.

g. A 60,000 shipment of goods to a customer on December 30, 2020, terms FOB destination, was recorded as a sale in
2020. The goods, costing 37,000 and delivered to the customer on January 6, 2021 were not included in 2020 ending
inventory.

Required: Correct amount of inventory at December 31, 2020

Problem 7
Examination of the records of Grand Company for the year ended December 31, 2020 revealed the following:
I. Inventory at January 1, 2020 was overstated by 71,000 because some inventories were counted twice on December 31,
2019.
II. Goods in transit from a supplier on December 31, 2020 under FOB shipping point were appropriately recorded as
purchases but were not included in the physical count 96,000.
III. Grand recorded as sales a 60,000 invoice price of goods shipped to customers on December 30. The goods costing
52,000 were in transit at December 31 and were excluded from the ending inventory. 60% of these goods were shipped
FOB shipping point, while the remaining goods were shipped FOB destination.
IV. Purchases of 100,000 were recorded when payment was made in 2020, although the goods were received in 2019 and
were included in the 2019 ending inventory.
V. Profit before income tax and before adjustments for the above items was 658,000.

Required: Calculate the correct profit before income tax for 2020.

Problem 8
On December 15, 2020, Online Buyer Company purchased merchandise having a gross cost of 100,000 under terms 5/10,
n/30. Prepare the journal entries under Gross Method and Net Method for the following cases:
a. Journal entry on December 15, 2020 for the purchase on account.
b. On December 22, 2020, Online Buyer made the full payment for the purchase on December 15, 2020.
c. On December 28, 2020, Online Buyer made the full payment for the purchase on December 15, 2020.
d. On December 31, 2020, Online Buyer has not yet paid the purchase on December 15, 2020.