HOMEWORK ON INVENTORIES

Problem 1

In testing the sales cut-off for Sheeran Co. for the year ended October 31, 2017, you find the following
information.

A physical inventory was taken as of the close of business on October 31, 2017. All customers are within a
three-day delivery area of the company’s plant. The unadjusted sales and inventory were P7,500,000 and
P330,000, respectively.

Invoice Date
FOB Terms Date Shipped Sales Cost
Number Recorded

6671 Destination Oct. 20 Oct. 31 P 3,000 P 2,700

6672 Shipping point Oct. 31 Nov. 2 7,500 6,000

6673 Shipping point Oct. 25 Oct. 31 5,400 3,600

6674 Destination Oct. 31 Oct. 29 12,600 9,300

6675 Destination Oct. 31 Nov. 2 27,600 24,000

6676 Shipping point Nov. 2 Oct. 23 19,500 15,300

6677 Shipping point Nov. 5 Nov. 6 22,500 17,400

6678 Destination Oct. 25 Nov. 3 11,700 6,000

6679 Shipping point Nov. 4 Oct. 31 25,800 24,600

6680 Destination Nov. 5 Nov. 2 15,000 12,000

1. Compute for the correct sales that should be reported in Sheeran’s profit or loss statement.
2. Compute for the correct balance of Sheeran’s inventory as of October 31, 2017.

Problem 2

The following balances pertain to Perfect Corp.

Accounts payable:
January 1 P 286,924
December 31 737,824
Inventory:
January 1 815,386
December 31 488,874
Cost of goods sold 1,859,082

How much was paid by Perfect to its suppliers during the year?
Problem 3

The following information was provided by Right Inc.

a. Sales for the month of June totalled 286,000 units.

b. The following purchases were made in June:

Date Quantity Unit Cost

4 50,000 P13.00
8 62,500 12.50
11 75,000 12.00
24 70,000 12.40

c. There were 108,500 units on hand on June 1 with a total cost of P1,450,000.

Right uses a periodic FIFO costing system. The company’s gross profit for June was P2,058,750.

1. How many units were on hand on June 30?

2. What is the cost of the company’s inventory on June 30?
3. What is the total cost of goods sold in June?
4. Determine the average selling price of each unit sold in June.

Problem 4

The following information was taken from the records of Morgana Co. for the month of December:

Sales P198,000
Sales returns 4,000
Additional markups 20,000
Markup cancellations 3,000
Markdowns 18,600
Markdown cancellations 5,600
Freight in 4,800
Purchases at cost 96,000
Purchases at retail 176,000
Purchase returns at cost 4,000
Purchase returns at retail 6,000
Beginning inventory at cost 60,000
Beginning inventory at retail 93,000

What is the cost of Morgana’s ending inventory under the average retail inventory method?

Problem 5

On September 5, 2017, a fire damaged the warehouse of Avalon Corp. All inventory items and many
accounting records stored in the warehouse were destroyed. However, a portion of the inventory could be sold
for scrap. The company’s backup files provide the following information:
 Inventory, January 1 P 750,000
Cash sales, January 1 to September 5 445,000
Purchases, January 1 to September 5 2,770,000
Collection of accounts receivable, January 1 to September 5 4,230,000
Accounts receivable, January 1 350,000
Accounts receivable, September 5 530,000
Salvage value of inventory 15,000
Gross profit ratio 32%

What is the estimated inventory fire loss?

Problem 6

The physical inventory of Percival Inc. as of December 26, 2017, totalled P945,000. In trying to establish the
December 31 inventory, you noted the following transactions from December 27 to December 31, 2017.

Sales (30% markup on cost) P390,000

Credit memos issued:

For goods returned on:
December 15 10,800
December 20 18,000
December 29 15,600
For goods delivered to customers not in
accordance with specifications 3,600

Credit memos received:

For goods returned on:
December 10 5,400
December 26 4,200
December 28 6,000

Purchases:
Placed in stock 90,000
In transit, FOB shipping point 124,500
In transit, FOB destination 39,000

What is the inventory balance on December 31, 2017?

Sept 2017