Inventory

Problem 1

Crossings Company regularly buys merchandise from Bes Company and is

allowed trade discounts of 20% and 10% from the list price. Crossings made a
purchase on March 20, 2019, and received an invoice with a list price of
P150,000, a freight charge of P2,50, and payment terms of 30 days.

Required:
What is the total cost of merchandise purchases?
 Problem 2

Jane Inc. had 10,200 units on April 30, 2019, based on physical count of goods
on that date. The following items have not yet been recorded as purchases and
sales as of April 30.

No. Transaction Term 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, 2019 and received by the buyer
May 5, 2019.

Required:
How many units should be considered as inventory at the end of April 30, 2019?
 Problem 3

The Orient Trading’s inventory at the end of 2019 is P9,500,000, before

considering the following information. Included in the amount are the
following items:

• Merchandise in transit, purchased FOB Shipping point, P680,000.

• Merchandise in transit, purchased FOB Destination, with invoice cost of
P420,000.
• Goods held on consignment, P500,000.
• Goods out on consignment, at cost plus 50% markup on cost plus P10,000
delivery charge, P610,000.
The P9,500,000 balance does not include the following items:

• Merchandise in transit to customers, FOB Shipping point, at selling price of

P540,000, which includes a 40% markup on selling price.
• Merchandise in transit to customers, FOB destination at selling price of
P400,000, which includes a 40% markup on selling price.
• Merchandise purchased in transit, “Free alongside”, costing P150,000.
• Merchandise sold, in transit, “Cost, Insurance, Freight,” charged to the buyer,
with selling price of P180,000 and cost of P120,000.

Required:
What is the correct amount in inventory?
 Problem 4

The physical inventory on December 31, 2019 of Tintin Co. showed merchandise
at P172,000. You discovered that the following items were excluded from this
amount:

• Merchandise costing P31,500 shipped by a vendor FOB shipping point on

December 31, 2019 and received by Tintin on January 5, 2020.
• Merchandise costing of P40,000 shipped by a vendor FOB destination on
December 30, 2019 and received by Tintin on January 4, 2020.
• Merchandise costing P12,500 which was shipped FOB destination to a
customer on December 29, 2019. The customer expected to receive the
merchandise on January 6, 2020.
• Merchandise costing P28,500 which was shipped FOB shipping point to a
customer on December 29, 2019. The goods are scheduled to arrive at the
destination point on January 2, 2020.

Required:
What is the correct amount of inventory that should appear on Tintin’s
December 31, 2019 statement of financial position?
 Problem 5

Centerpoint, Inc. is preparing its 2019 year-end financial statements. Prior to

any adjustments, inventory is valued at P562,500. The following information has
been found relating to certain inventory transactions.

a. Goods valued at P110,000 are on consignment with a customer. These

goods are not included in the P562,500 inventory figure.
b. Goods costing P27,000 were received from a vendor on January 5, 2020.
The related invoice was received and recorded on January 12, 2020. The
goods were shipped on December 31, 2019, terms FOB shipping point.
c. Goods costing P85,000 were shipped on December 31, 2019, and were
delivered to the customer on January 2, 2020. The terms of the sale were
FOB shipping point. The goods were included in ending inventory of 2019,
even though the sale was recorded also in 2019.
• A P35,000 shipment of goods to a customer on December 31, 2019, terms FOB
destination was not included in the year-end inventory. The goods cost P26,000 and
were delivered to the customer on January 8, 2020. The sale was properly recorded
in 2020.
• An invoice for goods costing P35,000 was received and recorded as a purchase on
December 31, 2019. The related goods, shipped FOB destination, were received on
January 2, 2020, and thus were not included in the physical inventory.
• Goods valued at P65,000 are on consignment from a vendor. These goods are not
included in the year-end inventory figure.
• A P60,000 shipment of goods to a customer on December 30,2019, terms FOB
destination, was recorded as a sale in 2019. The goods, costing P37,000 and
received by the customer on January 6,2020, were not included in 2019 ending
inventory.

Required:
Determine the correct inventory amount to be reported in Centerpoing, Inc’s
statement of financial position at December 31, 2019.
 Problem 6

Mega Company had the following inventory transactions during 2019:

Units Unit Cost Unit Selling price

Inventory, January 1 250 P10.50
Purchase, March 7 200 11.00
Purchase, July 15 275 11.75
Sale, May 20 (120) P14.00
Sale, June 30 (55) 15.00
Sale, September 17 (250) 16.00
Inventory, December 31 300
Required:
Determine the cost of ending inventory, cost of goods sold and gross profit
under each of the following inventory cost flow methods. Complete the table
given below. (Where necessary round off unit cost to nearest centavo and total
cost to nearest peso).

Cost of Ending Cost of

Inventory Goods Sold Gross Profit

FIFO _____________ ___________ _________

Weighted Average _____________ ___________ _________
Moving Average _____________ ___________ _________
 Problem 7

The following date were taken from the inventory records of Landmark
Enterprises for January 2019:
Units Unit Cost Total Cost
Bal. at January 1 2,400 P10.75 P25,800
Purchases: January 5 1,900 11.35 21,565
January 24 3,800 11.80 44,840
Sales: January 8 2,200
January 30 3,600
Balance at January 31 2,300
Required:
Determine the inventory value at January 31, assuming that – (Round-off the
unit cost to the nearest centavo and total cost to the nearest peso).

a) Landmark Enterprises maintains perpetual inventory records and uses the

average costing method.
b) Landmark Enterprises does not maintain perpetual inventory records and
uses the average costing method.
 Problem 8

The inventory records of Rockwell Club, Inc. could not be located because the
accountant quit without formal turnover of records. In order to reconstruct the
inventory at the beginning, the store manager gathered the following data from
their sales records for the month of January:
Units Unit Price
January Sales 160,500 P12.00
January purchases:
January 4 30,000 7.80
January 10 37,500 7.50
January 16 45,000 7.20
January 24 42,000 7.40
As of January 31, 45,000 units were on hand. Rockwell’s gross profit on sale for
January was P738,600. The company uses a periodic FIFO inventory costing
system.

Required:
What was the total cost and the unit average cost of the January 1, inventory?
 Problem 9

The Mazda Corporation, which was established in 2017, manufactures

lubricants used by car manufacturers. The following data were abstracted from
the company’s records.
2017 2018 2019
No. of units produced 13,000 18,000 25,000
No. of units sold 10,000 16,000 24,000
Production cost per unit P700 P820 P850
Sales for each year:
2017 P12,000,000
2018 P18,800,000
2019 P29,400,000
Required:
Determine the amount of gross profit for each of the years 2017, 2018 and
2019 using

a. FIFO method
b. Weighted average method applying the periodic inventory system.
 Problem 10

The Sta. Lucia Company, organized in 2017, used the average costing method for its
inventory. It is considering to change its inventory costing policy and to adopt the FIFO
basis. Profit under the average costing method and inventory costs, based on both
average and FIFO methods, are shown below:
2017 2018 2019
Profit P3,600,000 P5,000,000 P7,000,000
Inventory, end:
Average basis 1,200,000 1,300,000 2,000,000
FIFO Basis 1,240,000 1,420,000 2,650,000

Required:
Determine the profit of Sta. Lucia Company for each of the three years had the
company used the FIFO costing method.
 Problem 11

Based on a physical inventory taken on December 31, 2019, City Company

determined its chocolate inventory on a FIFO basis at P26,000. City estimated
that, after further processing costs of P12,000, the chocolate could be sold as
finished candy bars for P40,000. City’s normal profit margin is 10% of sales.

Required:
Under the lower of cost and net realizable value rule, what amount should City
Company report as chocolate inventory on its December 31, 2019 statement of
financial position?
 Problem 12

The following information is available for the Century Trading:

Product A B C D
Cost P102 P45 P24 P9
Estimated sales price 120 60 30 15
Estimated disposal costs 15 18 8 5
Number of units 4,000 6,000 5,500 7,200

Required:
Using the lower of cost and net realizable value, determine the total inventory
value to be presented in Century Trading’s Statement of financial position.
 Problem 13

The Dechavez Company reported the following inventory figures at the end of each
year.
12/31/2019 12/31/2018 12/31/2017
LCNRV P600,000 P480,000 P300,000
Cost (FIFO) 660,000 500,000 380,000

Year Ended
12/31/2019 12/31/2018
Sales P3,200,000 P2,900,000
Purchases 1,400,000 1,200,000
Selling Expenses 450,000 330,000
Administrative Expenses 300,000 310,000
Required:
Present the profit or loss section of the statement of comprehensive income for
the years ended December 31,2 019 and 2018 using:

a. Direct method
b. Allowance method
 Problem 14

Purple Company had determined its December 31, 2019 inventory on a FIFO basis on
P200,000. Information pertaining to that inventory follows:

Estimated selling price P204,000

Estimated costs of disposal 10,000
Normal profit 30,000

Purple records losses that result from applying the lower of cost and net realizable
value rule.

Required:
What is the amount of loss that Purple Company should recognize at December 31,
2019?
 Problem 15

The following information pertains to Powder Blue Company at December 31,

2019:

Inventory, January 1 P1,400,000

Purchases during the year 6,600,000
Inventory, December 31:
Cost 1,200,000
Net realizable value 1,000,000
Prior to 2019, the application of the lower of cost and net realizable value never
produced a write down in the company’s inventory to an amount below cost.

Required:
What is the cost of goods sold assuming the company applies the lower of cost
and net realizable value using the allowance method?
 Problem 16

The Philam Grocers Company uses the first-in, first-out method in calculating
the cost of goods sold for the two products that the company sells. At January
1, 2019, the balance of inventory account was P435,000 and the allowance to
reduce inventory to net realizable value had a balance of P15,000.
Inventories and purchases information concerning these two products are given
for the year 2019:
Date Transaction Product X Product Y
Jan.1 Inventory 2,500 @P120 1,500 @90
Jan.1 –Dec. 31 Purchases (in 2,000 @P122 1,000@P94
chronological 2,400 @P124 1,500@P95
order) 3,000 @P125 2,000@P98
Jan.1 – Dec. 31 Sales 7,000@P150 5,000@P124
At December 31, 2019, because of a government order, Philam’s suppliers
reduced the prices of both X and Product Y by 10%, effective January 1, 2020.
As a consequence, Philam also reduced its selling prices for Product X and Y by
10%, effective January 1, 2020. Selling cost is consistently 10% of sales price.

Required:
(a) Determine the cost of the inventory of Product X and Product Y at
December 31, 2019
(b) At what amount should the inventory be shown on December 31, 2019
statement of financial position?
(c) How much cost of goods sold will be shown in the statement of
comprehensive income for the year ended December 31, 2019?
(d) How much gain or loss shall be recognized as a result of measuring the
inventories at the lower of cost and net realizable value?
(e) Give the entries to set up the ending inventory and the adjustment of the
related valuation account at the end of the year.
 Problem 17

Your audit of DEC Company’s inventory and related records revealed the
following information:

Merchandise inventory, January 1, 2019 P450,000

Purchases for the year 2019 3, 150, 000
Sales of the year 2019 4,200,000

You conducted a physical inventory on December 31, 2019 and determined

P500,000 was in the company’s warehouse. The company’s president suspects
some new employees may have pilfered a portion of the merchandise
inventory.
Required:
Determine the estimated cost of the missing inventory, assuming DEC
Compnay’s gross profit remained constant at

(a) 40% of sales

(b) 40% of cost of sales
 Problem 18

You took a physical inventory for your sole proprietorship at the close of
business on July 31, 2019.
The inventory totaled P205,000. You were verifying the accuracy of the
inventory records at June 30, 2019, therefore you must estimate an inventory
amount on that date. You find that during the period July 1 through July 31,
2019, sales were P705,000; sales returns, P18,000; gross purchases, P650,000;
purchase returns, P12,000, freight-in, P6,000.

Required:
What is the estimated cost of inventory on June 30, 2019 assuming that goods
are sold at 20% above cost?
 Problem 19

On May 6, 2019, a flash flood caused damage to the merchandise stored in the
warehouse of Manel Company. You were asked to submit an estimate of the
merchandise destroyed in the warehouse. The following data were established:

2018 net sales, P8,000,000 matched against cost of P5,600,000.

Merchandise inventory, January 1, 2019 was P2,000,000, 90% of which was in

the warehouse and 10% in downtown showroom.
From January 1, 2019 to date of flood, you ascertained the following: invoice
value of purchases (all stored in the warehouse), P1,000,000; freight inward,
P40,000; purchase returns, P60,000. Cost of merchandise transferred from the
warehouse to showroom was P80,000 and net sales from January 1 to May 6,
2019 (all warehouse stock) was P3,200,000.

Required:
Assuming gross profit rate in 2019 to be the same as in the previous year, what
was the estimated cost of merchandise destroyed by the flood?

(Phil, CPA Adapted)

 Problem 20

The Herminia Company is engaged in buying and selling cleansing products. The
following transactions and other information are available for the year ended
December 31, 2019:
Inventory, January 1, 2019 P 200,000
Gross purchases, all under the credit terms
2/ 10;n/ 30 5,000,000
Purchase returns made by the company, all
made before payment of accounts 80,000
Gross sales 7,380,000
Sales allowances granted 30,000
Sales returns 180,000
 Problem 21

Old Rose Company’s pricing structure has been established to yield a gross
margin of 30%. The following data pertains to the year ended December 31,
2019:

Sales- P2,200,000; Inventory, January 1, 2019 – P1,000,000; Purchases –

P800,000; Freight cost on purchases – P20,000; Freight cost on merchandise
sold – P30,000; Inventory inside the company’s warehouse, per actual account
on 12/31/19 – P160,000; Credit memo issued to customers for merchandise to
be returned, 01/02/20 – P40,000; Sales Discounts – P100,000.
Old Rose Company is satisfied that all sales and purchases have been fully and
properly recorded.

Required:
How much would Old Rose Company reasonably estimate as a shortage in
inventory at December 31, 2019?
 Problem 22

Blazing Red Company began operations in 2016. On August 28, 2019, a fire
broke out in the company’s warehouse destroying all inventory and most of the
accounting records. The following information was assembled from the
microfilmed records. All sales and purchases are on account.

January 1, 2019 August 28, 2019

Inventory P575,400
Accounts Receivable 522,360 P515,560
Accounts Payable 352,560 491,400
Collections from customers,
January 1 to August 28, 2019 3,015,200
 January 1, 2019 August 28, 2019
Payments to suppliers
January 1 to August 28, 2019 1,950,000
Goods out on consignment on
August 28, 2019, at cost 195,000
Goods in transit at August 28, 2019
purchased FOB shipping point 69,500

The company’s average gross profit percentage for the past three years is 30%.

Required:
What is the inventory fire loss?
 Problem 23

Chic Department Store uses the retail method of inventory. At the end of June,
the records of the company provided the following information:

Purchases during June: at cost, P2,400,000; at retail, P4,000,000.

Sales during June: P3,500,000.
Inventory, June 1: at cost, P355,000; at retail, P750,000.

Required:
Estimate the ending inventory and cost of goods sold for June under
(a) FIFO cost basis; and
(b) Average cost basis (round off cost ratios to two decimals).
 Problem 24

London Company uses the FIFO retail method of inventory valuation. The following information is available:
Cost Retail
Beginning inventory P145,000 P160,000
Purchases (net) 283,920 420,800
Additional markups 25,200
Mark up cancellations 9,200
Markdowns 38,100
Markdown cancellations 6,900
Sales revenue 450,000
Sales returns 15,200
Sales discounts 3,800

Required:
What would be the estimated cost of ending inventory, using average cost retail?
 Problem 25

The inventory records of Alemar’s Dry goods, Inc. disclosed the following data
for the month of January 2019:

Beginning Inventory - at cost P 630,000

Beginning Inventory – at retail value 1,050,000
Purchases – at cost 420,000
Purchases – at retail value 735,000
Net sales amounted to P1,050,000; markdowns amounted to P105,000. During
the month, the sales manager increased the selling price of P1,600 pieces of T-
shirts by P50.00 because of the increase in demand. This increase was
subsequently cancelled on the remaining 300 pieces. The physical inventory on
January 31, 2019 was P665,000 at retail value.

Required:
What was the inventory overage (shortage) at retail value on January 31, 2019?
 Problem 26

The retail inventory method is used by Uniwide Sales. The records of inventory,
purchases, and sales for the year 2019 are given below:
Cost Retail
Beginning Inventory P185,700 P202,000
Purchases 339,380 458,000
Purchase Allowance 11,000
Freight- in 7,300
Departmental Transfers- in 2,000 3,000
Additional Markups 12,000
Markup Cancellations 2,500
Inventory Shortage 7,000
Sales (including sales of P4,500 which
were marked down from P6,000) 374,000
 Problem 27

Examination of the records of Grand Company for the year ended December 31,
2019 revealed the following:
• Inventory at January 1, 2019 was overstated by P71,000 because some
inventories were counted twice on December 31, 2018.
• Goods in transit from a supplier on December 31, 2019 under FOB shipping
point were appropriately recorded as purchases but were not included in the
physical count, P96,000.
• Grand recorded as sales a P60,000 invoice price of goods shipped to
customers on December 30. The goods costing P52,000, 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.
• Purchases of P100,000 were recorded when payment was made in 2019,
although the goods were received in 2018 and were included in the 2018
ending inventory.
• Profit before income tax and before adjustments for the above items was
P658,000.

Required:
(a) Calculate the correct profit before income tax for 2019.
(b) Determine the net effect of the foregoing errors on profit before income tax
for the year 2018.
 Problem 28

During 2019, USTFU Company signed a non-cancelable contract with Nueva

Ecija Milling Company to purchase 1,000 sacks of rice at P1,200 per sack with
delivery to be made in 2020. On December 31, 2019, the price of rice had fallen
to P1,150 per sack.

Required:
Give the entries on December 31, 2019 and on February 28,2020 (the date of
actual purchase) when the market price on February 28, 2020 of each sack of
rice is
(a) P1,150
(b) P1,100
(c) P1,220