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CHAPTER 5 – Audit of Inventory
Exercises - Analysis of Transactions
- Moneba Company bought merchandise on January 2, 2006 from Lynn Company costing P15,000; terms, less 20%, 20% down payment, balance 2/10, n/30. Two days after, P2,000 worth of merchandise was returned due to wrong specification. Moneba Company paid the account within the discount period. How much Moneba Company paid to Lynn Company? a. P 7,600 b. P 7,448 c. P 7,408 d. P 7,
Answer - P 7, Buyer Seller Purchases 12,000 Accounts Receivable 9, Cash 2,400 Cash 2, Accounts Payable 9,600 Sales 12, Accounts payable 2,000 Sales 2, Purchases 2,000 Accounts Receivable 2, Accounts payable 7,600 Cash 7, Purch. Disc. 152 Sales Discount 152 Cash 7,448 Accounts Receivable 7,
- Merchandise shipped fob destination to customer was made on January 5, 2006 for P25,000. The customer issued P10,000 12% 30-day note and the balance 2/10, n/ on January 10, 2006, the date the goods were received. The customer made a partial payment on January 15, 2006 for P5,000. Payment was made within the discount period. How much discount was granted? a. P 0 b. P 200 c. P 300 d. P 500
Answer - P 300 Buyer Seller Jan. 5 No Entry Jan. 5 No Entry Jan. 10 Purchases 25,000 Jan. 10 Notes Receivable 10, Notes payable 10,000 Accounts Receiv. 15, Accounts pay. 15,000 Sales 25, Jan. 15 Accounts pay. 5,000 Jan 15 Cash 5, Cash 5,000 Accounts receiv. 5, Date of Payment: Accounts pay. 10,000 Cash 9, Cash 9,700 Sales discount 300 Purchase discount 300 Accounts reciev. 10, Discount : P15,000 x 2% = P
- On January 10, 2006, Lao Company sold merchandise on account fob destination to Febryan Co. for P20,000. Febryan Co. paid the freight cost of P1,500 to be deducted from its account. How much Febryan Company paid to Lao Company? a. P 21,500 b. P 20,000 c. P 19,600 d. P 18,
Answer - P 18, Seller Buyer Accounts receivable 18,500 Purchases 20, Transportation expense 1,500 Accounts payable 18, Sales 20,000 Cash 1, Cash 18,500 Accounts payable 18, Accounts receivable 18,500 Cash 18,
- Goods worth P12,000 was shipped on account (2/10, n/30) to Ibuyan Company on January 15, 2006 from Rubenil Company The term of the shipment was fob shipping point. Rubenil Company paid freight of P950. On January 12, 2006, P2,500 worth of merchandise was received by Rubenil Co. from Ibuyan Co. due to wrong specification. Ibuyan Company made a partial payment of P5,000. How much is the subsequent collection of Rubenil Company from Ibuyan Company assuming Ibuyan Company paid within the discount period? a. P 5,450 b. P 5,260 c. P 4,500 d. P 4,
Answer- P 5, Buyer Seller Purchases 12,000 Accounts receivable 12, Freight-in 950 Sales 12, Accounts payable 12,950 Cash 950 Account payable 2,500 Sales 2, Purchases 2,500 Accounts receivable 2, Accounts payable 5,000 Cash 5, Cash 5,000 Accounts receivable 5, Accounts payable 5,450 Cash 5, Cash 5,260 Sales discount 190 Purchase discount 190 Accounts receivable 5, Discount – P12,000 – P2,500 = P9,500 x 2% = P
- Gabutero Company purchased merchandise on account for P10,000 from Lilibeth Company with term shipping point. The freight cost was P1,500 and was paid by Gabutero Company Upon the arrival of the carrier, it found out that the merchandise got lost while in transit. The carrier company accepted the loss as their fault. How much is the subsequent collection of Lilibeth Company from Gabutero Company? a. P 11,500 b. P 10,000 c. P 8,500 d. P 0
Answer - P 10, Buyer Seller Purchases 10,000 Accounts receivable 10, Freight-in 1,500 Sales 10, Accounts payable 10, Cash 1, Claims receivable 11, Purchases 10, Freight-in 1,
- Chan Company bought from Casas Company a second-hand machinery for the use of its plant for P50,000 A 50% down payment was made and balance 2/10, n/30. Freight cost was paid by Chan Company for P2,000. Casas Company acquired the machinery three years ago at P60,000 with 10 year life. (Straight-line method is use in computing Depreciation). Two days after purchase, Casas Company granted the request of Chan Company for a P5,000 price adjustments because of some defects of the machinery. Cash paid by Chan Company to Casas Company assuming the account was paid within the discount period is a. P 20,400 b. P 20,000 c. P 19,600 d. P 19,
Answer - P 19, Buyer Seller Machinery 50,000 Cash 25, Cash 25,000 Accounts recei. – others 25, Accounts payable – others 25,000 Accum. depreciation 18, Machinery 60, Gain on sale 8, Machinery 2, Cash 2,
segregated for shipment to customer in five days per sales contract, with return privilege. 18,
Question:
- If the recorded inventory in the balance sheet is P289,000, the year-end inventory will be overstated by: a. P 41,000 b. P 23,000 c. P 18,000 d. P 3,
- The following should be included from the inventory, except: a. Inventory shipped today, f.o.b. shipping point, invoice mailed to customer. b. Inventory counted in warehouse by the inventory crew. c. Inventory shipped today, f.o.b. destination, invoice mailed to customer. d. Inventory in warehouse count, specifically crafted and segregated for shipment to customer with return privilege.
- The inventory per audit at year-end is: a. P 286,000 b. P 271,000 c. P 266,000 d. P 248,
Solution
_1. P 20,
- 50,
- 70,
- 5,000 (the fact that Anecito pays the freight, the term then is FOB shipping point)
- 5,
- 10,
- 90,
- 6,
- –
- –
- ( 8,000)
- 18,000 (this is still included in the inventory since the goods has a return privilege)_ P266, _Answer:
- b 2. a 3. c_
Problem 2 In the event of your audit, you found the following information related to the inventories on December 31, 2006.
a. An invoice for P90,000, FOB shipping point, was received on December 15, 2006. The receiving report indicates that the goods were received on December 18, 2006, but across the face of the report is the notation “Merchandise not of the same quality as ordered, returned for credit, December 19”. The merchandise was included in the inventory.
b. Included in the physical count were inventories billed to customer FOB shipping point on December 31, 2006. These inventories had a cost of P28,000 and were billed at P35,000. The shipment was in loading dock waiting to be picked by the common carrier.
c. Merchandise with an invoice cost of P50,000, received from a vendor at 5:00 pm on December 31, 2006, were recorded on a receiving report dated January 2, 2007. The goods were not included in the physical count, but invoice was included in accounts payable at December 31, 2006.
d. Merchandise costing P15,000 to the company FOB shipping point on December 26,
- The purchase was recorded, but the merchandise was excluded from the ending inventory because it was not received until January 4, 2007.
e. The inventory included 1000 units erroneously priced at P9.50 per unit. The correct cost was P10.00 per unit.
The adjusting entries for:
- Item letter “a” is; Debit Credit a. Cost of sales 90,000 Inventory 90, b. Inventory 90,000 Cost of Sales 90, c. Retained earnings 90,000 Inventory 90, d. No adjustment
- Item letter “b” is: Debit Credit a. Cost of sales 28,000 Inventory 28, b. Inventory 28,000 Cost of sales 28, c. Cost of sales 35,000 Inventory 35, d. No adjustment
- Item letter “c” is; Debit Credit a. Inventory 50,000 Cost of sales 50, b. Cost of sales 50,000 Inventory 50, c. Inventory 50,000 Retained earnings 50, d. No adjustment
- Item letter “d” is: Debit Credit a. Cost of sales 15,000 Inventory 15, b. Inventory 15,000 Cost of sales 15, c. Inventory 15,000 Retained earnings 15, d. No adjustment
- Item letter “d” is: Debit Credit a. Cost of sales 500 Inventory 500 b. Inventory 500 Cost of sales 500 c. Cost of sales 10,000 Inventory 10, d. Inventory 10,000 Cost of sales 10,
Answer -
1. a 2. d 3. a 4. b 5. b
- In audit finding number “d”, choose the correct statement? a. The company is correct for not making an entry on the P6,500 purchase on account even though it is already included in the inventory count since no term of shipment is given. b. The company should reduced its purchases at December 31, 2006 since the purchases being paid in 2006 was the purchase for 2005. c. The company is correct in recording of purchases in year 2006 since this is the time when the company made payment on such. d. Inventory should be recorded at December 31, 2005 since the purchases were recorded on this year.
- The entry to adjust audit finding number “e” at December 31, 2006 is: (assume the book is not close) a. Retained Earnings 6,400 c. Purchases 6, Inventory 6,400 Accounts Payable 6, b. Retained Earnings 6,400 d. Cost of sales 6, Accounts payable 6,400 Inventory 6,
- The entry to adjust audit finding number “f” at December 31, 2006 is: (assume the book is close) a. Inventory 25,000 c. Cost of sales 25, Accounts Receivable 25,000 Sales 25, Cost of sales 25,000 Retained Earnings 25, Sales 25,000 Accounts Receivable 25, b. Cost of sales 25,000 d. Retained Earnings 2, Sales 15,000 Inventory 12, Retained Earnings 25,000 Accounts Receivable 15, Accounts Receivable 15, _Answer
- b 2. d 3. d 4. b 5. a 6. d_
Problem 4 The PRINCE COMPANY’S year-end inventory based on physical count conducted on December 31, 2006, amounted to P885,000. Your cut-off examination disclosed the following information”:
- Included in the physical count were goods billed to customer FOB shipping point on December 31, 2006. These goods had a cost of P28,000 and were billed at P35,000. The shipment was on PRINCE’S loading dock waiting to be picked up by the common carrier.
- Goods were in transit from a vendor to PRINCE on December 31, 2006. The invoice cost was P50,000 and the goods were shipped FOB Shipping on Dec. 29,2006.
- Work in process inventory costing P20,000 was sent to an outside processor for plating on Dec. 30, 2006.
- Goods returned by customers and held pending inspection in the returned goods area on Dec. 31, 2006, were not included in the physical count. On January 8, 2007, the goods costing P26,000 were inspected and returned to inventory. Credit memos totaling P40,000 were issued.
- Goods shipped to customer FOB destination on Dec. 26, 2006, were in transit at Dec. 31, 2006 and had a cost of P25,000. Upon notification of receipt by the customer on January 2, 2007, the company issued a sales invoice for P42,000.
- Goods received from a vendor on Dec. 26, 2006, were included in the physical count. However the related P60,000 vendor invoice was not included in Accounts Payable as December 31, 2006, because the Accounts Payable copy of the receiving report was lost.
- On January 3, 2007, a monthly freight bill in the amount of P4,000 was received. This was specifically related to merchandise purchased in Dec. 31, 2006. The freight charges were not included in either the inventory or in accounts payable at Dec. 31, 2006.
Question:
- Sales at year-end is overstated by: a. P 75,000 b. P 40,000 c. P 35,000 d. P 33,
- Purchases at year-end is understated by: a. P 110,000 b. P 84,000 c. P 64,000 d. P 60,
- Cost of sales at year-end is overstated by: a. P 46,000 b. P 21,000 c. P 11,000 d. P 7,
- The inventory per audit at year-end is: a. P 981,000 b. P 959,000 c. P 1,006,000 d. P 1,010,
Solution
1. Sales 35, _Accounts receivable 35,
- Inventory 50,_ _Cost of sales 50, Purchases 50, Accounts payable 50,
- Inventory 20,_ _Cost of sales 20,
- Inventory 26,_ _Cost of sales 26, Sales 40, Accounts receivable 40,
- Inventory 25,_ _Cost of sales 25,
- Purchases 60,_ _Accounts payable 60,
- Inventory 4,_ _Accounts payable 4, Answer:
- a 2. a 3. c 4. d_
Problem 5 On January 1, 2007, Arcenith Corporation engaged an independent CPA to perform an audit for the year ended December 31, 2006. The company uses a periodic inventory system. The CPA did not observe the inventory count on December 31, 2006, as a result, a special examination was made of the inventory records.
The financial statements prepared by the company (uncorrected) showed the following: ending inventory, P72,000; accounts receivable, P60,000; accounts payable, P30,000; sales, P400,000; net purchases, P160,000, and pretax income P51,000.
- Merchandise that cost P8,000 was included in the ending inventory because it was on hand. The merchandise had been rejected because of incorrect specifications and was being held for return to the vendor. The merchandise was recorded as a purchase on December 26, 2006.
Question: Based on your analysis and the information above, answer the following:
- The adjusted balance of inventory at year-end is: a. P 101,900 b. P 102,000 c. P 102,800 d. P 120,
- The adjusted balance of accounts receivable at year-end is: a. P 10,500 b. P 12,000 c. P 35,000 d. P 37,
- The adjusted balance of accounts payable at year-end is: a. P 43,000 b. P 35,000 c. P 30,000 d. P 22,
- The adjusted balance of Sales at year-end is: a. P 377,000 b. P 352,000 c. P 350,500 d. P 347,
- The adjusted balance of Net Purchases at year-end is: a. P 152,000 b. P 165,000 c. P 173,000 d. P 181,
- The adjusted balance of Pre-tax income at year-end is: a. P 27,300 b. P 29,000 c. P 29,800 d. P 35,
Solution
Inventory end
Acnts. Receivable Acnts. Payable
Sales Net Purchases
Pretax ncome Unadj. bal. 72,000 60,000 30,000 400,000 160,000 51, Item 1 800 800 Item 2 18,000 18, (23,000) (23,000) (23,000) Item 3 10,000 10, (25,000) (25,000) (25,000) Item 4 (1,500) (1,500) (1,500) Item 5 (1,000) (1,000) Item 6 - - - - - - Item 7 - - - - - - Item 8 6,000 6, Item 9 (15,000) (15,000) Item 10 7,000 7, Item 11 13,000 13, 13,000 13,000 (13,000) Item 12 (8,000) (8,000)
- - (8,000) (8,000) 8, Adjusted balance
102,800 10,500 35,000 350,500 165,000 27,
Answer:
1. c 2. a 3. b 4. c 5.b 6. a
Problem 6 Marlisa Company’s December 31, 2005 and December 31, 2006 inventory is P35,000 and P27,000, respectively. The beginning and ending inventories were determined by physical count of the goods on hand on those dates, and no reconciling items were considered. All purchases are f.o.b. shipping point. In the course of your examination of the inventory cut- off, both the beginning and ending of each year, you discover the following facts:
Beginning of the year
a. Invoices totaling P3,260 were entered in the voucher register on January, but the goods were received during December. b. December invoices totaling P4,100 were entered in the voucher register in December, but the goods were not received until January.
End of the Year
c. Invoices totaling P7,260 were entered in the voucher register in January but the goods were received in December. d. December invoices totaling P3,600 were entered in the voucher register in December, but the goods were not received until January. e. Invoices totaling P1,500 were entered in the voucher register in January, and the goods were received in January, but the invoices were dated December.
Question: Based on your analysis and the information above, answer the following:
- The adjusted balance of the Jan. 1, 2006 inventory is: a. P 35,000 b. P 35,840 c. P 39,100 d. P 59,
- How much is the adjusted balance of the Purchases account at December 31, 2006 assuming the amount of Purchases in the trial balance is P5,176,000? a. P 5,170,566 b. P 5,180,000 c. P 5,181,500 d. P 5,185,
- The corrected December 31, 2006 inventory is a. P 52,100 b. P 50,600 c. P 32,100 d. P 28,
- When auditing inventories, an auditor would least likely verify that a. All inventory owned by the client is on hand at the time of the count. b. The client has used properly inventory pricing. c. Damaged goods and obsolete items have been properly accounted for. d. The financial statement presentation of inventories is appropriate.
Solution a. Retained earnings 3, Purchases 3, b. Beginning inventory 4, Retained earnings 4, c. Purchases 7, Accounts payable 7, d. Inventory 3, Cost of sales 3, e. Inventory 1, Cost of sales 1, Purchases 1, Accounts payable 1, Answer: 1. c 2. c 3. c 4. a
- The adjusted total sales in 2006 is a. P 962,400 b. P 925,600 c. P 925,000 d. P 922,
- The adjusted Cost of goods sold in 2006 is a. P 640,040 b. P 650,200 c. P 651,040 d. P 657,
Solution
1. Inventory 8, _Cost of Sales 8,
- Accounts payable 6,_ _Purchases 6, Cost of sales 6, Inventory 6,
- Inventory 7,_ _Cost of sales 7, Purchases 7, Accounts payable 7,
- No adjustments
- No adjustments
- Cost of sales 11,_ _Inventory 11,
- Sales 20,_ _Accounts receivable 20, Answer:
- b 2. c 3. a 4. d 5. d_
Problem 8 CHARMAINE COMPANY is a manufacturer of small tools. The following information was obtained from the company’s accounting records for the year ended December 31, 2006: Inventory at December 31, 2006 (based on physical count in Charmaine’s warehouse at cost on December 31, 2006) 1,870, Accounts payable at December 31, 2006 1,415, Net sales (sales less sales returns) 9,693,
Your audit reveals the following information:
The physical count included tools billed to a customer FOB shipping point on December 31, 2006. These tools cost P64,000 billed at P78,500. They were in the shipping area waiting to be picked up by the customer.
Goods shipped FOB shipping point by a vendor were in transit on December 31, 2006.These goods with invoice cost of P93.400 were shipped on December 29, 2006.
Work in process inventory costing P27,000 was sent to a job contractor for further processing.
Not included in the physical count were goods returned by customers on December 31, 2006. These goods costing P49,000 were inspected and returned to inventory on January 7, 2007. Credit memos for P67,800 were issued to the customers at that date.
In transit to a customer on December 31, 2006, were tools costing P17,740 shipped FOB destination on December 26, 2006. A sales invoice for P29,400 was issued on January 3, 2007, when Charmaine Company was notified by the customer that the tools had been received.
At exactly 5:00 pm on December 31, 2006, goods costing P31,200 were received from a vendor. These were recorded on a receiving report dated January 2, 2007. The related invoice was recorded on December 31, 2006, but the goods were not included in the physical count.
Included in the physical count were goods received from a vendor on December 27,
- However, the related invoice for P36,000 was not recorded because the accounting department’s copy of the receiving report was lost.
A monthly freight bill for P16,000 was received on January 3, 2007. It specifically related to merchandise bought in December 2006, one half of which was still in the inventory at December 31, 2006. The freight was not included in either the inventory or in accounts payable at December 31, 2006.
Question: Based on your analysis and the information above, answer the following:
- The inventory at year-end is: a. Understated by P170,340 c. Understated by P126, b. Understated by P162,340 d. Understated by P82,
- The accounts payable at year-end is: a. Understated by P93,400 c. Understated by P137, b. Understated by P106,200 d. Understated by P145,
- The amount of sales at year-end is: a. Overstated by P67,800 c. Overstated by P29, b. Overstated by P38,400 d. Correctly stated
- The adjusted balance of inventory at year-end is: a. P 1,952,140 b. P 1,996,340 c. P 2,032,340 d. P 2,040,
5 The adjusted balance of accounts payable at year-end is: a. P 1,560,400 b. P 1,552,400 c. P 1,521,200 d. P 1,508,
- The adjusted balance of sales at year-end is: a. P 9,722,800 b. P 9,693,400 c. P 9,655,000 d. P 9,625,
Solution Adjusting entry: Cost of sales 64, Inventory 64, Inventory 93, Cost of sales 93, Purchases 93, Accounts payable 93, Inventory 27, Cost of sales 27, Inventory 49, Cost of sales 49, Sales 67, Accounts receivable 67, Inventory 17, Cost of sales 17, Inventory 31, Cost of sales 31,
g. All of the purchases from Dacalos Company occurred during the last seven days of the year. These items have been recorded in accounts payable and accounted for in the physical inventory at cost before discount. Cruzada’s policy is to pay invoices in time to take advantage of all cash discounts, adjust inventory accordingly, and record accounts payable, net of cash discount.
Questions:
- The adjusted inventory is: a. P 1,326,700 b. P 1,304,700 c. P 1,276,000 d. P 1,270,
- The adjusted accounts payable is: a. P 864,700 b. P 866,700 c. P 872,000 d. P 1,017,
- The adjusted sales is: a. P 8,960,000 b. P 9,000,000 c. P 9,040,000 d. P 9,100,
Solution a. Cost of sales 155,000 Accounts payable 155, Inventory 155,000 Purchases 155, b. Cost of sales 22, Inventory 22, c. Accounts receivable 40, Sales 40, d. Inventory 210, Cost of sales 210, e. Inventory 25, Accounts payable 25, f. Inventory 2, Accounts payable 2, g. Accounts payable 5, Inventory 5, Answer:
1. b 2. b 3. c
Problem 10 Raffy Corporation reported income before income taxes as follows:
2005 P525,
The company uses the periodic inventory system. Ending inventories for 2005 and 2006 were properly recorded. The following additional information became available following an analysis of the inventories:
(a) Merchandise with a gross invoice price of P7,500 was shipped FOB shipping point by a supplier on terms of 2/10, n/30 in 2005 and was recorded as a purchase by Raffy Corporation in 2005 when the invoice was received: however, the goods were not included in the ending inventory because they were not received until 2006. The company always takes advantage of the early payment discounts and accordingly, records its purchases using the net method.
(b) Merchandise that cost P3,000 was purchased FOB shipping point by Raffy Corporation on December 31, 2005 and was shipped by the supplier that day. The merchandise was not included in the 2005 ending inventory and was not recorded as a purchase until 2006.
(c) Merchandise costing P2,850 was shipped FOB shipping point to a customer in 2005 and not included in the ending inventory for 2005. The sale of P4,260 was recorded in 2006 when the invoice was sent.
(d) Goods being held by Raffy Corporation on consignment from a supplier in the amount of P4,950 were included in the physical inventory for 2005.
(e) Retailers were holding P6,750 of goods at cost (P9,000 at retail), on consignment from Raffy, at their stores on December 31, 2005. These goods were not included in the ending inventory of Raffy Corporation for 2005.
Question:
- How much is the correct income before taxes for 2005? a. P 643,410 b. P 616,590 c. P 538,410 d. P 511,
- How much is the correct income before taxes for 2006? a. P 643,410 b. P 616,590 c. P 538,410 d. P 511,
- The cost of sales at December 31, 2006 is understated by: a. P 12,150 b. P 9,750 c. P 9,150 d. P 6,
- The Retained earnings – beginning at December 31, 2006 is understated by: a. P 13,410 b. P 12,150 c. P 10,410 d. P 9,
- The beginning inventory (January 1, 2006) of Raffy Corporation is understated by: a. P 13,410 b. P 12,150 c. P 9,150 d. P 5,
Solution a. Beginning inventory (COS) 7,350 2005 2006 Retained earnings – beg 7,350 Net income 525,000 630, (a) 7,350 ( 7,350) b. Beginning inventory (COS) 3,000 (b) 3,000 ( 3,000) Retained earnings – beg 3,000 ( 3,000) 3, (c) 4,260 ( 4,260) Retained earnings – beg 3,000 (d) ( 4,950) 4, Purchases (COS) 3,000 (e) 6,750 ( 6,750) Adjusted NI 538,410 616, c. Sales 4, Retained earnings – beg 4, d. Retained earnings – beg 4, Beginning inventory (COS)4, e. Beginning inventory (COS) 6, Retained earnings – beg 6, Answer:
1. c 2. b 3. c 4. a 5. b
Problem 11 You audit of APAS COMPANY for the year 2006 disclosed the following:
- The December 31 inventory was determined by a physical count on December 28 and based on such count, the inventory was recorded by: Inventory 1,400, Cost of sales 1,400,
- The 2006 ledger shows a sales balance of P20,000,000.
- The company sells a mark-up of 20% based on sales.
- The company recognizes sales upon passage of title to the customers.
- All customers are within a four-day delivery area.
Unadjusted Sales 20,000,000 Unadjusted inventory 1,400, (1) ( 50,000) (2) ( 50,000) (3) ( 56,000) (4) ( 72,000) (5) 74,500 (6) ( 59,600) (7) 67,500 (8) _________ Adjusted Sales 20,036,000 Adjusted inventory 1,218,
Sales for the month of December that 2006 were erroneously recorded in January 2007: Invoice # 307 74, Invoice # 310 67, Total 142,
Sales for the month of January 2007 were erroneously recorded in December 2006: Invoice # 300 50, Invoice # 304 56, Total 106, Answer:
1. a 2. b 3. b 4. b 5. d 7. d
Problem 12 On December 15, 2006, under your observation, your client took a complete physical inventory and adjusted the financial perpetual inventory control accounts to agree with the physical inventory.
As of December 31, 2006, you decided to accept the balance of the control account after examining transactions recorded in that account between December 15 and December 31,
- The audit was for the year ended December 31, 2006.
In the course of conducting your examination of the sales cutoffs as of December 15 and December 31, 2006, you discovered the following items: Date Inventory Item Cost Price Sales Price Date Shipped Date Billed Control Credited A P 60,000 P 78,000 12-13-06 12-17-06 12-17- B 77,000 101,400 01-02-07 12-29-06 12-29- C 52,000 67,600 12-17-06 12-29-06 12-29- D 87,000 113,100 12-14-06 12-16-06 12-16- E 49,500 64,500 12-25-06 01-02-07 01-02-
Question: Based on the information above and your analysis, answer the following
- The inventory at year-end is over/(under) by: a. P 174,500 over c. P 114,500 over b. P 174,500 under d. P 114,500 under
- The cost of sales at year-end is over/(under) by: a. P 174,500 over c. P 114,500 over b. P 174,500 under d. P 114,500 under
- The sales at year-end is over/(under) by: a. P 36,900 over c. P 101,400 over b. P 36,900 under d. P 101,400 under
- The accounts receivable at year-end is over/(under) by: a. P 36,900 over c. P 101,400 over b. P 36,900 under d. P 101,400 under
Solution
AJEs as of December 31, 2002
Item Debit Credit A Inventory 60, Cost of Goods Sold 60, This item was not included in the physical inventory and was credited to the Inventory account on 12.17.06; a physical inventory cutoff error.
B Sales 101, Inventory 77, Accounts Receivable 101, Cost of goods sold 77, This item is a year-end sales cut-off error. C Properly recorded; no AJE needed. D Inventory 87, Cost of goods sold 87, (same as Item A) E Accounts Receivable 64, Cost of goods sold 49, Sales 64, Inventory 49, This item is a year-end sales cut-off error.
Answer:
1. b 2. a 3. a 4. a
Problem 13 The following information was obtained from the balance sheet of LION INC.:
Dec. 31, 2006 Dec. 31, 2005 Cash P706,600 P 200, Notes receivable 0 50, Inventory? 399, Accounts payable? 150,
All operating expenses are paid by Lion Inc. with cash and all purchases of inventory are made on account. Lion, Inc. sells only one product. All sales are cash sales which are made for P100 per unit. Lion. Inc., purchases 1,500 units of inventory per month and values its inventory using the periodic FIFO. The unit cost of inventory during January 2006 was P65.20 and increased P0.20 per month during the year. During 2006, payments to suppliers totaled P943,400 and operating expenses totaled P440,000. The ending inventory for 2005 was valued at P65.00 per unit.
Question: Based on the information above and your analysis, answer the following
- Recorded sale during 2006 is: a. P 1,840,000 b. P 1,890,000 c. P 2,090,000 d. P 2,140,
- Number of units sold during 2006 is: a. 21,400 b. P 20,900 c. 18,900 d. 18,
