Chapter 4 - Inventories

CHAPTER 4
INVENTORIES
PROBLEMS
Discussion Question No. 15 (Hamster Company

Goods displayed in the store

Goods stocked in the warehouse, not covered by any sales
contract
Goods purchased, in transit, shipped FOB seller
Goods purchased, in transit, shipped FOB destination
Freight cost on goods received, goods are still unsold
Goods held on consignment
Goods out on consignment
Goods out to customers on approval
Goods in the hands of traveling salesmen
Goods sold with a buyback arrangement for the full selling
price and other costs incurred by the buyer
Unused factory supplies and indirect materials
Goods which require additional processing
Direct materials stocked in the warehouse
Storage costs of goods completed
Insurance premiums paid on stocked goods
Goods completed, manufactured to customers specification,
awaiting instruction for delivery by the customer
Freight paid on goods sold
Unused supplies for administrative purposes
Unused store supplies
Goods sold with a right to return granted to buyers, amount of
return is reasonably predictable.
Goods sold under FAS, at the port designated by the buyer
Goods at the port, purchased CIF

Include Exclude

PROBLEMS
4-1.

(Crossings Company)
Invoice price (150,000 x 0.80 x 0.90)
Freight charge
Total cost of merchandise purchases

4-2.

P 108,000
2,500
P 110,500

(Jane, Inc.)
Reported units on April 30, 2016
Adjustments:
No. 1 item Purchased FOB shipping point
still in transit not included in purchases
No. 3 item Sold FOB destination still in transit not
included in inventory
Correct inventory quantity

31

10,200

250
500
10,950

Chapter 4 - Inventories

4-3.

(Orient Trading)
Reported inventory
Merchandise in transit purchased FOB destination
Goods held on consignment
Mark up on goods out on consignment
Sales price
600,000
Cost (600,000 1.5)
400,000
Merchandise in transit to customers FOB destination
400,000 x (100% - 40%)
Merchandise purchased in transit FAS
Correct inventory

4-4.

240,000
150,000
P8,770,000

P 172,000
31,500
12,500
P 216,000

(Centerpoint, Inc.)
Reported inventory
Adjustments:
a.
Goods out on consignment
b.
Goods purchased in transit FOB shipping point
c.
Goods sold in transit FOB shipping point
included in inventory
d.
Goods sold in transit FOB destination
e.
not included in inventory
g.
Goods sold in transit FOB destination
not included in inventory
Correct inventory

4-6.

(200,000)

(Tintin Company)
Physical inventory at December 31, 2016
Merchandise in transit shipped FOB shipping point
Merchandise sold FOB destination still in transit
Correct inventory at December 31, 2016

4-5.

P9,500,000
(420,000)
(500,000)

P 562,500
110,000
27,000
(

85,000)
26,000
37,000
P 677,500

(Mega Company)
FIFO
Weighted average
Moving average
FIFO

Cost of EI
3,506
3,333
3,370

Cost of ending inventory:

275 x 11.75
25 x 11.00
Cost of goods sold:

Cost of Goods Sold

4,550
4,723
4,686

3,231.25
275.00

32

Gross Profit
1,955
1,782
1,819

3,506.25

Chapter 4 - Inventories

Cost of goods available for sale

Less ending inventory
Gross profit:
Sales
Less cost of goods sold
Weighted average
Cost of ending inventory:
Cost of goods available for sale
Number of units available for sale
Weighted average cost per unit
Units in ending inventory
Cost of goods sold:
Cost of goods available for sale
Less ending inventory
Gross profit:
Sales
Less cost of goods sold
Moving average
Cost of ending inventory:
Inventory, January 1
Purchase, March 7
Total
Sale, May 20
Sale, June 30
Balance
Purchase, July 15
Total
Sale, September 17
Balance

(Landmark Enterprises)
a.

4,550.00

6,505.00
4,550.00

1,955.00

8,056.25
725
11.11
x 300

3,333.00

8,056.25
3,333.00

4,723.25

6,505.00
4,723.25

1,781.75

250 x 10.50 = 2,625.00

200 x 11.00 = 2,200.00
450 x 10.72 = 4,825.00
(120 x 10.72 = 1,286.40)
( 55 x 10.72 = 589.60)
275 x 10.72 = 2,949.00
275 x 11.75 = 3,231.25
550 x 11.24 = 6,180.25
(250 x 11.24 = 2,810.00)
300 x 11.24 =

Cost of goods sold:

Cost of goods available for sale
Less ending inventory
Gross profit:
Sales
Less cost of goods sold
4-7.

8,056.25
3,506.25

Cost of ending inventory

1/1
2,400@ 10.75 25,800
1/5
1,900@ 11.35 21,565
4,300@ 11.02 47,365
1/8
2,200@ 11.02 24,244
2,100@ 11.01 23,121
1/24
3,800@ 11.80 44,840
5,900@ 11.52 67,961
1/30
3,600@ 11.52 41,472
2,300@ 11.52 26,489

33

3,370.25

8,056.25
3,370.25

4,686.00

6,505.00
4,686.00

1,819.00

Chapter 4 - Inventories

b.

4-8.

Cost of goods available for sale (25,800 + 21,565 + 44,840)

Number of units available for sale (2,400 + 1,900 + 3,800)
Weighted average cost per unit
Number of units in ending inventory
Cost of ending inventory

(Rockwell Club, Inc.)

Cost of sales:
Sales (160,500 x 12)
1,926,000
Less gross profit
738,600
Add ending inventory
42,000 x 7.40
310,800
3,000 x 7.20
21,600
Available for sale
Deduct purchases
Inventory, January 1
Average cost per unit (369,750 51,000 units)

4-9.

P92,205
8,100
P 11,38
x 2,300
P26,174

Amount

Units

P1,187,400

160,500

332,400
P1,519,800
1,150,050
P 369,750

45,000
205,500
154,500
51,000
P 7.25

(Mazda Corporation)
(a)

FIFO
Sales
Cost of goods sold
Gross profit
Cost of goods sold:
2014
10,000
2015
3,000
13,000
2016
5,000
19,000

(b)

2014
P12,000,000
7,000,000
P 5,000,000
x 700
x 700
x 820
x 820
x 850

Weighted average
Sales
Cost of goods sold
Gross profit

=
=
=
=
=

2015
P18,800,000
12,760,000
P 6,040,000

2016
P29,400,000
20,250,000
P 9,150,000

7,000,000
2,100,000
10,660,000
4,100,000
16,150,000
2014
P12,000,000
7,000,000
P 5,000,000

12,760,000
20,250,000
2015
P18,800,000
12,845,760
P 5,954,240,

2016
P29,400,000
20,211,360
P 9,188,640

Cost of goods sold:

2014
10,000 x 700
7,000,000
2015
(3,000 x 700) + (18,000 x 820) x 16,000*
12,845,760
21,000
2016
(5,000 x 802.86) + (25,000 x 850) x 24,000*
20,211,360
30,000
*unit costs were rounded off to nearest centavo: 802.86 and 842.14, for
2015 and 2016, respectively.
4-10.

(Sta. Lucia Company)

Reported profit under average method
Difference in inventory using FIFO
Beginning inventory
Ending inventory
Profit under FIFO basis

34

2014
P3,600,000

2015
P5,000,000

2016
P7,000,000

40,000
P3,640,000

(40,000)
120,000
P5,080,000

(120,000)
650,000
P7,530,000

Chapter 4 - Inventories

4-11.

(City Company)
Cost (under FIFO basis)
Net realizable value (40,000 12,000)
Lower of cost and net realizable value

4-12.

Product

Cost
102
45
24
9

NRV
105
42
22
10

Lower
102
42
22
9

Quantity
4,000
6,000
5,500
7,200

Amount
P408,000
252,000
121,000
64,800
P845,800

Dechavez Company
(a) Direct Method
The profit is computed as follows:
Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Profit
Cost of goods sold:
Beginning inventory
Purchases
Total cost of goods available for sale
Ending inventory
Cost of goods sold
(b) Allowance method
The profit is computed as follows:
Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Decline in NRV
Gain on adjustment of allowance
Profit
Cost of goods sold:
Beginning inventory
Purchases
Total cost of goods available for sale
Ending inventory
Cost of goods sold

4-14.

P26,000

(Rustans Trading)

A
B
C
D
Total
4-13.

P26,000
P28,000

(Purple Company)

35

2016
P3,200,000
(1,280,000)
P1,920,000
(450,000)
(300,000)
P 1,170,000
P 480,000
1,400,000
P1,880,000
600,000
P1,280,000
2016
P3,200,000
(1,240,000)
P1,960,000
(450,000)
(300,000)
(40,000
__________P 1,170,000

P 500,000
1,400,000
P1,900,000
(660,000)
P1,240,000

2015
P2,900,000
(1,020,000)
P1,880,000
(330,000)
(310,000)
P 1,240,000
P

300,000
1,200,000
P 1,500,000
480,000
P 1,020,000
2015
P2,900,000
(1,080,000)
P1,820,000
(330,000
(310,000)

60,000
P 1,240,000

380,000
1,200,000
P 1,580,000
500,000
P 1,080,000

Chapter 4 - Inventories

Cost
Net realizable value (204,000 10,000)
Loss
4-15.

P200,000
194,000
P 6,000

(Powder Blue Company)

Inventory, January 1
Purchases during the year
Cost of goods available for sale
Less Inventory, December 31
Cost of goods sold

4-16.

P1,400,000
6,600,000
P8,000,000
1,200,000
P6,800,000

(Philam Grocers Company)

(a) Cost of product X and product Y
January 1 inventory
Purchases
Sold
December 31 inventory
Unit cost (all coming from latest purchase price, as
ending inventory is less than latest purchases)
Ending inventory at FIFO cost

Product X
2,500 units
7,400 units
(7,000 units)
2,900 units

Product Y
1,500 units
4,500 units
(5,000 units)
1,000 units

P125
P362,500

P98
P98,000

(b)
Sales price (effective 2015) 90% x previous SP
Estimated selling cost
Net realizable value
Lower of cost and net realizable value, per unit
Number of units in ending inventory
Inventory value at lower of cost and NRV
Total inventory value at December 31, 2016

Product X
P135.00
(13.50)
P121.50
P121.50
2,900 units
P352,350
(352,350+98,000)

Product Y
P111.60
(11.16)
P100.44
P98
1,000 units
P98,000
=

P450,350
(c) Cost of goods sold in the statement of comprehensive income
Product X
Product Y
Total
Inventory Jan. 1
P 300,000
P135,000 P 435,000
Purchases
916,600
432,500
1,349,100
Goods available for sale
P1,216,600
P567,500
P1,784,100
Ending inventory at cost
362,500
98,000
460,500
Cost of goods sold
P1,323,600
(d)
Inventory at cost
P460,500
Inventory at lower of cost and NRV
450,350
Required allowance
P 10,150
Existing allowance
15,000
Gain on adjustment of allowance
P 4,850
(e)

Inventory
Income Summary

460,500

(or using the cost of goods sold method)

36

460,500

Chapter 4 - Inventories

Inventory, December 31
Cost of goods sold
Purchases
Inventory, January 1

460,500
1,323,600
1,349,100
435,000

Allowance to Reduce Inventory to NRV

Gain on Adjustment of Allowance to
Reduce Inventory to NRV
4-17.

4,850
4,850

(DEC Company)
(a)

(b)

Gross profit is 40% based on sales

Merchandise inventory, January 1, 2016
Purchases for the year
Cost of goods available for sale
Less estimated cost of goods sold (4,200,000 x 60%)
Estimated cost of ending inventory
Physical inventory on December 31, 2016
Estimated cost of the missing inventory
Gross profit is 40% based on cost of sales
Merchandise inventory, January 1, 2016
Purchases for the year
Cost of goods available for sale
Less estimated cost of goods sold (4,200,000/1.40)
Estimated cost of ending inventory
Physical inventory on December 31, 2016
Estimated cost of the missing inventory

4-18.

Estimated cost of goods sold (705,000 18,000)/1.20

Add Inventory at July 20, 2016
Cost of goods available for sale
Less net purchases for the period (650,000 12,000 + 6,000)
Estimated cost of June 30, 2016 inventory

4-19.

(Manels Company)
Merchandise inventory, January 1
Purchases (1,000,000 + 40,000 60,000)
Cost of goods available for sale
Estimated cost of goods sold (3,200,000 x 70%)
Estimated ending inventory
Less goods undamaged located in showroom (200,000 + 80,000)
Estimated cost of merchandise destroyed by the flood

4-20.

P 450,000
3,150,000
P3,600,000
2,520,000
P 1,080,000
500,000
P 580,000

P 450,000
3,150,000
P3,600,000
3,000,000
P 600,000
500,000
P 100,000
P572,500
205,000
P777,500
644,000
P133,500

P2,000,000
980,000
P2,980,000
2,240,000
P 740,000
280,000
P 460,000

(Herminia Company)
Inventory, January 1
Purchases
Purchase returns
Total

P 200,000
P5,000,000
(80,000)

37

4,920,000
P5,120,000

Chapter 4 - Inventories

Estimated cost of goods sold (7,380,000 180,000) x 60%)

Estimated cost of ending inventory
Goods in transit
Estimated cost of ending inventory
4-21.

(Old Rose Company)

Inventory, January 1, 2016
Purchases
Freight in
Cost of goods available for sale
Estimated cost of goods sold (2,200,000 50,000) x 70%
Estimated cost of ending inventory
Inventory per actual count
Shortage in inventory

4-22.

P1,000,000
800,000
20,000
P1,820,000
1,505,000
P 315,000
160,000
P 155,000

(Blazing Red Company)

Inventory, January 1, 2016
Purchases:
Payments to suppliers
Accounts Payable, 8/28/16
Accounts Payable, 1/1/16
Cost of goods available for sale
Estimated cost of goods sold:
Collections from customers
Accounts Receivable, 8/28/16
Accounts Receivable, 1/1/16
Sales
Cost percentage
Estimated cost of ending inventory
Less undamaged goods:
Goods out on consignment
Goods in transit
Estimated inventory fire loss

4-23.

4,320,000
P 800,000
( 100,000)
P 700,000

P 575,400
P1,950,000
491,400
( 352,560)

P3,015,200
515,560
( 522,360)
P3,008,400
70%

P 195,000
69,500

2,088,840
P2,664,240

2,105,880
P 558,360

264,500
P 293,860

(Chic Department Store)

(a)

(FIFO cost basis

Inventory, June 1
Purchases
Available for sale
Sales
Inventory, June 30 at retail
Cost percentage (2,400,000/4,000,000)
Estimated cost of inventory
Cost of goods available for sale

Cost
P 355,000
2,400,000
P2,755,000

Retail
P 750,000
4,000,000
P4,750,000
3,500,000
P1,250,000
60%
P 750,000
P2,755,000

Less estimated cost of ending inventory

Estimated cost of goods sold

750,000
P2,005,000

38

Chapter 4 - Inventories

(b)

Average cost basis

Inventory, June 30 at retail
Cost percentage (2,755,000/4,750,000)
Estimated cost of inventory
Cost of goods available for sale

P1,250,000
58%
P 725,000
P2,755,000

Less estimated cost of ending inventory

725,000

Estimated cost of goods sold

4-24.

P2,030,000

(London Company)
Average cost retail
Cost
Beginning Inventory
P145,000
Purchases
283,920
Additional markups
Markup cancellations
Markdown
Markdown cancellations
________
Total available for sale
P428,920
Cost to retail ratio 428,920/565,600 = 75.8%
Sales, net of sales returns
Ending inventory at retail
Ending inventory at average cost retail (130,800 x 75.8%)

4-25.

(434,800)
130,800
P 99,146

(Alemars Drygoods, Inc.)

Retail
P1,050,000
735,000
80,000
( 15,000)
(105,000)
P1,745,000
(1,050,000)
P 695,000
665,000
P 30,000

Beginning Inventory
Purchases
Markups (1,600 x 50)
Markup cancellations (300 x 50)
Markdowns
Total
Sales Revenue
Ending Inventory, at retail
Physical inventory on January 31, 2016
Inventory shortage at retail value
4-26.

Retail
P160,000
420,800
25,200
(9,200)
(38,100)
6,900
P565,600

(Uniwide Sales)
(a) (1) Average retail
Cost
P185,700
339,380
( 11,000)
7,300
2,000

Beginning Inventory
Purchases
Purchase Allowance
Freight In
Departmental Transfers In
Additional Markups
Markup Cancellations
Markdowns (6,000 4,500)

_________

39

Retail
P202,000
458,000

3,000
12,000
( 2,500)
(1,500)

Chapter 4 - Inventories

Total
Sales
Inventory Shortage
Ending Inventory, at retail
Cost to retail ratio (523,380/671,000)
Ending Inventory, at estimated average cost

P523,380

P671,000
(374,000)
(7,000)
P290,000
78%
P226,200

(2) FIFO retail (exclude the beginning inventory in computing the cost ratio)
337,680/469,000 = 72%
Ending inventory at FIFO cost
72% x P290,000
= P208,800
(b) Cost of goods sold
Average
P523,380
(226,200)
P297,180

Goods available for sale

Ending inventory
Cost of goods sold

4-27.

FIFO
P523,380
(208,800)
P314,580

(Grand Central, Inc.)

(a)
Profit reported for 2016
Adjustments:
Overstatement of beginning inventory
Understatement of ending inventory
Goods still in transit shipped to customers FOB destination
recorded as sales (40% x 60,000); related cost was excluded
in ending inventory (40% x 52,000), net
Purchases of 2015 recorded in 2016
100,000
Correct net income for 2016
(b)
Understated 2015 ending inventory
Understated 2015 purchases
Net overstatement in 2015 profit
4-28.

P658,000
71,000
96,000

(3,200)

P921,800

Effect on 2015 profit

P 71,000 understated
100,000 overstated
P 29,000

(USTFU Company)
(a)
December 31, 2016
Loss on Purchase Commitments
50,000
Estimated Liability on Purchase Commitments
1,000 x (1,200 1,150)

50,000

February 28, 2017

Purchases
Estimated Liability on Purchase Commitments
Accounts Payable

40

1,150,000
50,000
1,200,000

Chapter 4 - Inventories

(b)
December 31, 2016
Loss on Purchase Commitments
50,000
Estimated Liability on Purchase Commitments

50,000

February 28, 2017

Purchases
Estimated Liability on Purchase Commitments
Loss on Purchase Commitments
Accounts Payable

1,100,000
50,000
50,000

1,200,000

(c)
December 31, 2016
Loss on Purchase Commitments
50,000
Estimated Liability on Purchase Commitments

50,000

February 28, 2017

Purchases
1,200,000
Estimated Liability on Purchase Commitments
50,000
Accounts Payable
Recovery of Loss on Purchase Commitments

1,200,000
50,000

MULTIPLE CHOICE QUESTIONS

Theory
MC1
MC2
MC3
MC4
MC5

B
A
D
B
D

MC6
MC7
MC8
MC9
MC10

A
A
D
A
A

MC11
MC12
MC13
MC14
MC15

C
A
A
C
D

MC16
MC17
MC18
MC19
MC20
MC21

A
D
D
C
D
D

Problems
MC22

Invoice price (90,000 x .80 x .90)

Freight charge

P64,800
5,000

Total cost of inventory

P69,800

MC23

Invoice price (150,000 x .85 x .90 x .95)

MC24

Invoice price
Cash discount (109,012.50 x 2%)
Cash payment within the discount period

41

P109,012.50
P109,012.50
(2,180.25)
P106,832.25

Chapter 4 - Inventories

MC25

Purchases of compatibles
Purchases of software package
Returns and allowances
Net purchases
Total discounts available (4,100,000 x 3%)
Purchase discounts taken
Discounts lost

MC26

P 96,000

Reported inventory, December 31

Goods still in transit purchased FOB shipping point
Correct amount of inventory

MC27

MC28

MC30

MC31

Reported amount of inventory

Goods sold in transit shipped FOB destination not included in
inventory (490,000 40,000 = 450,000; 450,000 1.5)
Goods purchased in transit shipped FOB shipping point plus
freight cost (600,000 + 60,000)
Goods out on consignment
(300,000 1.5 = 200,000; 200,000 + 30,000)
Correct inventory, December 31
Reported amount of inventory
Merchandise in the delivery department excluded in inventory
Imported goods not included, trust receipts already accepted
Goods in transit shipped FOB destination included in inventory

MC33

P3,000,000
300,000
660,000
230,000
P4,190,000
P5,000,000
80,000
800,000
(25,000)
P5,855,000

Inventory taken by physical count

Goods purchased in transit FOB shipping point excluded

P77,500
6,000

Correct amount of inventory

P83,500

Direct materials
Direct materials purchased in transit, FOB shipping point
Work in process
Finished goods
Goods on consignment (150,000 x 80%)
Total cost of inventory
Mark up on merchandise on consignment
(104,000 1.3 = 80,000; 80,000 x .30)
Goods held on consignment
Mark up on goods out on approval (32,500 25,000)
Reduction in inventory at December 31

MC32

P1,500,000
50,000
P1,550,000

Correct merchandise inventory

MC29

P3,280,000
900,000
(80,000)
P4,100,000
P123,000
(27,000)

P550,000
90,000
380,000
450,000
120,000
P1,590,000
P24,000
56,000
7,500
P87,500

Sales (3,000 x 35) + (2,000 x 36) + (1,000 x 37)

Cost of sales (4,000 x 25) + (2,000 x 26)

P214,000
152,000

Gross profit on sales

P 62,000

1/12
1/22
Total

1,600 @ 8.00
4,800 @ 9.60
6,400

12,800
46,080
58,880 / 6,400 units

42

P9.20

Chapter 4 - Inventories

MC34

Confidence: cost 22; NRV = 30 3 = 27

Positive attitude: cost 55; NRV = 80 28 = 52

MC35

Product H 1,000 x 25
Product O 2,000 x 36
Product P 3,000 x 120
Product E 4,000 x 18
Total inventory value

MC36

Beginning inventory
Purchases (400,000 + 500,000 + 600,000)
Available for sale
Cost of goods sold (2,240,000 1.4)

P 600,000
1,600,000
P2,200,000
1,600,000

Cost of inventory before the fire

P 500,000

MC37

P 25,000
72,000
360,000
72,000
P529,000

Inventory, beginning
Purchases (2,550,000 + 250,000 300,000)
Cost of goods sold (2.8M + 900,000 700,000 = 3.0M sales
3.0M / 1.25
Inventory, ending
Physical inventory
Amount of inventory shortage

MC38

MC39

MC40

Lower P22
Lower P52

P180,000
2,500,000
(2,400,000)
P280,000
110,000
P170,000

Total cost of goods sold for 2014 and 2015 (1.04M + 1.55M)
Total sales for 2014 and 2015 (1.7M + 2.0M)
Average cost rate (2,590,000/3,700,000)

P2,590,000
P3,700,000
70%

Inventory, January 1, 2016

Purchases
Total cost of goods available for sale
Estimated cost of goods sold (2,500,000 x 70%)
Estimated cost of ending inventory
Cost of merchandise out on consignment (150,000 x 70%)
Cost of goods undamaged (in transit FOB shipping point)

P 520,000
2,180,000
P2,700,000
1,750,000
P950,000
(105,000)
(95,000)

Cost of inventory lost by fire

P750,000

Beginning inventory
Net purchases (378,245 10,295)
Estimated cost of goods sold (450,200 5,100) x 78%*
Estimated cost of ending inventory
Cost of undamaged inventory
Realizable value of damaged merchandise

P105,650
367,950
(347,178)
P126,422
(69,738)
(5,000)

Estimated fire loss

*Cost rate in 2015
Cost of goods sold (120,160 + 394,366 105,650 =
408,876
Net sales (530,180 5,980) = 524,200
Direct materials used (400,000 + 1,280,000 740,000)
Direct labor
Manufacturing overhead (50% x 960,000)

P 51,684

43

= 78%

P940,000
960,000
480,000

Chapter 4 - Inventories

Total manufacturing cost

Work in process, beginning
Total cost put into process
Cost of goods sold (4.0M x 75%)
Finished goods, end
Cost of goods available for sale
Finished goods, beginning

P2,380,000
1,100,000
P3,480,000
P3,000,000
1,310,000
P4,310,000
(1,500,000)

Cost of work in process lost by fire

MC 41

C
Inventory, January 1
Purchases
Purchase returns
Freight in
Available for sale
Cost to retail ratio (1,908,000/3,180,000=60%)
Net sales (2,365,000 62,000)
Ending inventory, at retail
Physical count of inventory at retail
Inventory pilferage, at retail

Cost
P 617,000
1,281,000
(21,000)
31,000
P1,908,000

D
Inventory, January 1
Purchases
Freight in
Net markups (18,900 7,800)
Markdowns
Available for sale
Cost to retail ratio (263,802/376,860 = 70%)

MC43

P 58,200
Cost
P47,075
213,327
3,400
_________
P263,802

Retail
P70,025
306,375
11,100
(10,640)
P376,860

Cost of goods sold (70% x 320,500)

P224,350

Available for sale at retail

Sales
Ending inventory, at retail
Physical count of inventory
Inventory shortage, at retail

P376,860
(320,500)
P56,360
39,390
P16,970

Estimated loss from inventory shortage (16,970 x 70%)

MC44

Retail
P1,057,000
2,158,000
(35,000)
___________
P3,180,000
(2,303,000)
P877,000
780,000
P 97,000

Cost of inventory pilferage (97,000 x 60%)

MC42

2,810,000
P 670,000

Beginning inventory, at retail

Purchases
Net markups
Net markdowns
Cost of goods available for sale, at retail
Sales revenue
Ending inventory, at retail
Cost to retail ratio (143,000/260,000 = 55%)
Ending inventory, at estimated cost

44

P11,879
P60,000
220,000
20,000
(40,000)
P260,000
(180,000)
P80,000
55%
P44,000

Chapter 4 - Inventories

MC45

Reported profit
Overstated ending inventory
Understated beginning inventory
Understated purchases

P600,000
(10,000)
(4,000)
(100,000)

Adjusted profit for the year

P486,000

45