FATHER SATURNINO URIOS UNIVERSITY

ACCOUNTANCY PROGRAM

ACC 214A – INTERMEDIATE ACCOUNTING I

NAME: SECTION: DATE:

INSTRUCTOR: SEAN JUSTIN F. ESPINA, C.P.A. SCORE:
MQ 1: INVENTORIES: Inventories; Inventory Cost Flow; Lower of Cost and Net Realizable Value;
Purchase Commitment & Gross Profit Method.

Instruction: Read each question carefully. Provide your solutions for every question. NO SOLUTION/s, NO
Point/s. God bless!

Problem 1. Dustin Company purchases motorcycles from various countries and exports them to Europe. The entity
has incurred the following costs during the current year:

Cost of purchase based on vendor’s invoices 5,000,000

Trade discounts on purchases already deducted from vendor’s invoices 500,000
Import duties 400,000
Freight and insurance on purchases 1,000,000
After sales warranty costs 250,000
Other handling costs relating to imports 100,000
Sales Commission paid to sales agents 300,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000

1. What is the total cost of the purchase? 6,700,000

Problem 2. Mike Company has a cost card in relation to an inventory manufactured as follows:

Materials 700,000
Storage costs of goods in process 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000

2. At what figure should the inventory be measured? 940,000

Problem 3. On June 1, 2019 Eleven Company sold merchandise with an invoice price of 1,000,000 to a customer.
The entity allowed trade discounts of 20% and 10%. Credit terms were 5/10, 2/20, n/30 and the sale was made FOB
shipping point. The entity prepaid 50,000 of delivery cost for the customer as accommodation.

3. On June 15, 2019, what amount is received from the customer as full remittance? 1,030,000

4. How much is the total trade discounts? 388,888.89

Problem 4. The audit of Will Company revealed a physical inventory on December 31,2018 with a cost of 4,000,000.
The following items were included from the count:

* A special machine, fabricated to order for a customer costing 400,000, was finished and specifically
segregated on December 31, 2018. The customer was billed on that date and the machine was included from
inventory and it was shipped on January 4, 2019. – 400,000
* Merchandise costing 50,000 shipped by a vendor FOB seller on December 28, 2018 and received by Will
Company on January 10, 2019. No effect

5. What is the correct inventory on December 31, 2018? 3,600,000

Problem 5. Suzie Company conducted a physical count on December 31,2018 which revealed inventory with a cost
of 4,410,000. The following items were excluded from the physical count:
* Merchandise held by Suzie on consignment 610,000
* Merchandise shipped by Suzie FOB destination to a customer on December
31, 2018 and was received by the customer on January 5, 2019 380,000
* Merchandise shipped by Suzie FOB shipping point to a customer on
December 31, 2018 was received by the customer on January 5, 2019 460,000
 * Merchandise shipped by a vendor FOB destination on December 31, 2018
was received by Suzie on January 5, 2019 830,000
* Merchandise purchased FOB shipping point was shipped by the supplier
on December 31, 2018 and received by Suzie on January 5, 2019 510,000

6. What is the correct amount of inventory on December 31,2018? 5,300,000

Problem 6. Jonathan Company provided the following information for an inventory at year-end:
Historical cost 1,200,000 COST 1,200,000
Estimated selling price 1,300,000 LCNRV 1,150,000, lower
Estimated completion and selling cost 150,000
Replacement cost 1,100,000

7. What amount should be reported as inventory at year-end? 1,150,000

Problem 7. Nancy Company uses the perpetual inventory system. The inventory transactions for August of the
current year were as follows:
Units Unit cost Total cost
August 1 Beginning 20,000 4.00 80,000
7 Purchase 10,000 4.20 42,000
10 Purchase 20,000 4.30 86,000
12 Sale 15,000 ? ?
16 Purchase 20,000 4.60 92,000
20 Sale 40,000 ? ?
28 Sale return 3,000 ? ?
The sale return relates to the August 20 sale.

8. If the FIFO cost flow method is used, the sale return shall be costed back into inventory at what unit cost? 4.60

Problem 8. The inventory card of Billy Company on February 28 is as follows:

Purchases Units Balance
Cost Units used units
January 10 100 2,000 2,000
31 1,000 1,000
February 8 110 3,000 4,000
9 return from factory (Jan. 10 lot) (100) 4,100
28 1,100 3,000

9. What is the weighted average cost of the inventory on February 28? 318,000

Problem 9. The following data were extracted from the records of Lucas Company about its inventory for the month
of January of the current year:
Units Unit cost Total cost
January 1 Beginning 16,000 140 2,240,000
5 Purchase 4,000 150 600,000
10 Sale 15,000 ? ?
15 Purchase 20,000 160 3,200,000
16 Purchase return 1,000 160 160,000
25 Sale 8,000 ? ?
26 Sale return 4,000 ? ?
31 Purchase 30,000 150 4,500,000

10. Compute for the Ending Inventory and Cost of goods sold using the ff inventory cost flow methods:

Inventory cost flow method Ending Inventory Cost of Goods Sold

FIFO – perpetual 7,690,000 2,690,000
Weighted Average – Periodic 7,521,500 2,858,170
Weighted Average – Perpetual 7,625,000 2,755,000

Problem 10. Steve Company provided the following data for year 2018:
Product 1 Product 2 Product 3 Product 4
Historical cost 800,000 1,000,000 700,000 500,000
Replacement cost 900,000 1,200,000 1,000,000 600,000
Sales price 1,200,000 1,300,000 1,250,000 1,000,000
 Net realizable value 550,000 1,100,000 950,000 350,000
Normal Profit 250,000 150,000 300,000 300,000

For the year 2019, it is assumed that the cost of inventory 3,500,000 and the Net realizable value is 3,300,000.

11. Prepare the necessary (adjusting) entries using Direct Method & Allowance Method for the year 2018 & 2019.

Direct Method Allowance Method

2018 Inventory, end 2,600,000 Inventory, end 3,000,000
Income Summary 2,600,000 Income Summary 3,000,000

Loss in inventory writedown 400,000

Allownace for inventory W.O. 400,000

2019 Inventory,end 3,300,000 Inventory, end 3,300,000

Income Summary 3,300,000 Income Summary 3,300,000

Allowance for Inv. W.O. 200,000

Gain on reversal of Inv. W.O. 200,000

Problem 11. On November 15, 2018, Robin Company entered into a commitment to purchase 10,000 ounces of gold
on February 15, 2019 at a price of 310 per ounce. On December 31, 2018, the market price of gold is 270 per ounce.
On February 15, 2019, the price of gold is 300 per ounce.

December 31, 2018 Loss on Purchase Commitment 400,000

Estimated Liability on Purchase Commitment 400,000

February 15, 2019 Purchases 3,000,000

Estimated Liability on Purch. Comm. 400,000
Accounts Payable 3,100,000
Gain on Purchase Commitment 300,000

12. Prepare the journal entries for December 31, 2018 and February 15, 2019.
13. What is the loss on purchase commitment to be recognized on December 31, 2018? 400,000
14. What amount should be debited to purchases on February 15, 2019? 3,000,000
15. What is the gain on purchase commitment to be recognized on February 15, 2019? 300,000

Problem 12. Lin Company sold merchandise at a gross profit of 30%. On June 30, all of the inventory was destroyed
by fire. The entity provided the following information for six months ended June 30:
Net sales 8,000,000
Beginning inventory 2,000,000
Net purchases 5,200,000

16. What is the estimated cost of the destroyed inventory? 1,600,000

Problem 13. Gecelle Company reported during the current year:

Beginning inventory 500,000
Net purchases 2,500,000
Net sales 3,200,000
A physical count at year-end resulted in an inventory of 575,000. The gross profit based on cost had remained
constant at 25%. The entity suspected that some inventory may have been taken by a new employee.

17. What is the estimated cost of missing inventory at year-end? BONUS QUESTION, the ending inventory
computed should be greater than 575,000.

Problem 14. At year end, Pam Company reported that a flood caused severe damage to the entire inventory. Based
on the recent history, the entity had a gross profit of 25% of sales. The entity provided the following information
for the current year:
Inventory, January 1 500,000
Purchases 4,000,000
Purchase returns 200,000
Freight In 50,000
Sales 5,600,000
Sales returns 400,000
 Sales allowances 100,000 ignore

18. What is the cost of ending inventory damaged by flood? 450,000

19. What is the estimated cost of goods sold for the year? 3,900,000

Problem 15. On September 30, Bro Company reported that a fire caused severe damage to the entire inventory. The
entity had a gross profit rate of 30% on cost. The entity provided the following data for nine months ended
September 30:
Inventory at January 1 1,100,000
Net Purchases 6,000,000
Net Sales 7,280,000
A physical inventory disclosed usable damaged goods which can be sold for 100,000.

20. What is the amount of fire loss? 1,400,000