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Assignment 2

1. Items 1, 4, 6, and 7 should be included in inventory as they were shipped or received by December 31. Item 2 is on consignment and excluded. 2. The correct inventory is P445,346 less P25,000 for consignment goods and plus P64,300 for goods shipped on 12/31 but received 1/5, for a total of P484,646. 3. The adjusted net income is P1,648,723 less P37,500 for the goods shipped on 12/31 but not deducted from inventory, for an adjusted net income of P1,611,223.

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43 views

Assignment 2

1. Items 1, 4, 6, and 7 should be included in inventory as they were shipped or received by December 31. Item 2 is on consignment and excluded. 2. The correct inventory is P445,346 less P25,000 for consignment goods and plus P64,300 for goods shipped on 12/31 but received 1/5, for a total of P484,646. 3. The adjusted net income is P1,648,723 less P37,500 for the goods shipped on 12/31 but not deducted from inventory, for an adjusted net income of P1,611,223.

Uploaded by

Lei Pangilinan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 1

GORABEL Company reviewed its inventories and found the following items:

1. In the shipping room was a product costing P567,400 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, 2020.
2. On December 27, 2019, merchandise costing P101,648 was received and recorded. The
invoice accompanying the merchandise was marked "on consignment."
3. The company received merchandise costing P74,625 on January 2, 2020. The invoice,
which was recorded on January 3, 2020 showed shipment was made under FOB
shipping point on December 31, 2019. 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 was completed and in the
shipping room on December 31. Although it was shipped on January 5, 2020, the
customer was billed on December 31, 2019 and it was excluded from the inventory.
5. Merchandise costing P316,666 was received on January 5, 2020, and the related
purchase invoice was recorded January 6. The shipment of this merchandise was made
on December 31, 2019, FOB destination.
6. A product costing P850,000 was sold on an installment basis on December 10, 2019. It
was delivered to the customer on that date. The product was included in inventory
because the company still holds legal title. The company's experience suggests that full
payment on installment sales is reasonably assured.
7. An item costing P765,000 was sold and delivered to the customer on December 29,
2019. The goods were included in the inventory because the sale was with a repurchase
agreement that require GORABEL Company to buyback the inventory on January 15,
2020.

REQUIRED: Indicate which of the above items are to be included in the inventory balance at
December 31, 2019. State your reason for the treatment you suggest.

Problem 2

In your audit of the December 31, 2019 financial statements of TARA G, Inc., you found the
following
inventory-related transactions:
a. Goods costing P25,000 are on consignment with a customer. These goods were not
included in the physical count on December 31, 2019.
b. Goods costing P16,500 were delivered to TARA G, Inc. on January 4, 2020. The invoice
for these goods was received and recorded on January 10, 2020. The invoice showed
the shipment was made on December 29, 2019, FOB shipping point.
c. Goods costing P21,640 were shipped FOB shipping point on December 31, 2019 and
were received by the customer on January 2, 2020. Although the sale was recorded in
2019, these goods were included in the 2019 ending inventory.
d. Goods costingP8,645 were shipped to a customer on December 31, 2019, FOB
destination. These goods were delivered to the customer on January 5, 2020 and were
not included in the inventory. The sale was properly taken up in 2020.
e. Goods costing P8,600 shipped by a vendor under FOB destination term, were received
on January 3, 2020, and thus were not included in the physical inventory. Because the
related invoice was received on December 31, 2019, this shipment was recorded as a
purchase in 2019.
f. Goods valued at P51,000 were received from a vendor under consignment term. These
goods were not included in the physical count.
g. TARA G, Inc. recorded as a 2019 sale a P64,300 shipment of goods to a customer on
December 31, 2019, FOB destination. This shipment of goods costing P37,500 was
received by the customer on January 5, 2020, and was not included in the ending
inventory figure.

Prior to any adjustments, TARA G, Inc.'s ending inventory is valued at P445,346 and the
reported net
income for the year is P1,648,723.

REQUIRED:
1. Determine the correct inventory amount to be reported in the financial statements of
TARA G, Inc. for the year ended December 31, 2019.
2. Compute the adjusted net income for the year 2019.

Problem 3

BABU Company is a manufacturer of small tools. The following information was obtained from
the company's accounting records for the year ended December 31, 2019.
Inventory at December 31, 2019 (based on physical count in BABU' warehouse at cost on
December 31, 2019 – P1,870,000
Accounts payable at December 31, 2019 – 1,415,000
Net sales (sales less sales returns) – 9,693,400

Your audit reveals the following information:


1. The physical count included tools billed to a customer FOB shipping point on December
31, 2019. These tools cost P64,000 and were billed at P78,500. They were in the
shipping area waiting to be picked up by the customer.
2. Goods shipped FOB shipping point by a vendor were in transit on December 31, 2019.
These goods with invoice cost of P93,400 were shipped on December 29, 2019.
3. Work in process inventory costing P27,000 was sent to a job contractor for further
processing.
4. Not included in the physical count were goods returned by customers on December 31,
2019. These goods costing P49,000 were inspected and returned to inventory on
January 7, 2020. Credit memos forP67,800 were issued to the customers at that date.
5. In transit to a customer on December 31, 2019, were tools costing P17,740 shipped
FOB destination on December 26, 2019. A sales invoice for P29,400 was issued on
January 3, 2020 when BABU company was notified by the customer that the tools had
been received.
6. At exactly 5:00 pm on December 31, 2019, goods costing P31,200 were received from a
vendor. These were recorded on a receiving report dated January 2, 2020. The related
invoice was recorded on December 31, 2019, but the goods were not included in the
physical count.
7. Included in the physical count were goods received from a vendor on December 27,
2019. However, the related invoice for P36,000 was not recorded because the
accounting department's copy of the receiving report was lost.
8. A monthly freight bill for P16,000 was received on January 3, 2020. It is specifically
related to merchandise bought in December 2019, one-half of which was still in the
inventory at December 31, 2019. The freight was not included in either the inventory or
in accounts payable at December 31, 2019.

REQUIRED: Compute for the adjusted amount of Inventory, Accounts Payable, and Net Sales

Problem 4

The management of ADIOSSSS, INC. , has engaged you to assist in the preparation of year-
end 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 ABC Corp. A letter received from ABC 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 Invoice Quantity in Date Date Terms


Order Date Date Units Shipped Received
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

Compute the following:


1. Goods purchased during December.
2. Units sold in December.
3. Units in December 31.

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