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NAME_______________________________ 5A_________

Presented below is a list of items that may or may not reported as inventory in
CHALLENGING Company’s December 31 statement of financial position located in

Goods sold f.o.b. Clark that are in transit as of December 31, the buyer 80,
is in Cebu 000
Goods sold f.o.b. Davao that are in transit as of December 31, the buyer 80,000
is in Davao
Interest cost incurred for inventories that are routinely manufactured 40,000
Costs incurred to advertise goods held for resale 20,000
Raw Materials on hand not yet placed into production 350,000
Raw materials on which a the company has started production, but which
are not completely processed 280,
Conversion costs incurred on goods still not completely processed 50,
Work-in-process inventory, ending
Costs identified with units completed but not yet sold 260,000
Goods out on consignment at another company’s store 400,
Goods purchased still in transit on December 31 on terms FAS (free 450,
alongside) 000
Goods purchased still in transit on December 31 on terms CIF (cost, 120,0
insurance, and freight) 00
Goods purchased still in transit on December 31on terms Ex-ship 200,0
Freight charges on goods purchased 80,000
1. How much of these items would be reported as inventory in the financial

During your audit of the Emily Corporation for the year ended December 31, 2014,
you found the following information relating to certain inventory transactions from
your observation of the client’s physical count and review of sales and purchases
cut-off. The client uses perpetual inventory system.

Note 1

Goods held on consignment from Victoria to Emily amounting to P100,000, were

included in the physical count of goods in Emily’s warehouse on December 31, 2014,
and in accounts payable at December 31, 2014.

Note 2

Goods were in transit from a vendor to Emily on December 31, 2014. The invoice
cost was P180,000, and the goods were shipped FOB shipping point on December
29, 2014.

Note 3

A P420,000 shipment of goods to a customer on December 30, 2014, terms FOB

destination, was recorded as a sale upon shipment. The goods cost P210,000 and
received by customer on January 3, 2015.
Note 4

Goods, with an invoice cost of P150,000, received from a vendor at 5:00 p.m. on
December 31, 2014, were recorded on a receiving report dated January 2, 2015. The
goods were not included in the physical count, but the invoice was included in
accounts payable at December 31, 2014.

Note 5

Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2014. These goods had a cost of P70,000 and were billed at
P140,000. The shipment was on Emily’s loading dock waiting to be picked up by the
common carrier.

Based on the above and the result of your audit, answer the following:

2. In relation to Note 1, the correcting journal entry to record the

transaction includes a debit to
a. Purchases of P100,000
b. Inventory of P100,000
c. Accounts Payable of P100,000
d. No entry needed

3. In relation to Note 2, the necessary adjusting journal entry includes a

debit to
a. Purchases of P180,000
b. Inventory of P180,000
c. Accounts Payable of P180,000
d. No entry needed

4. In relation to Note 3, the necessary adjusting journal entry does not

include a debit to
a. Cost of Sales of P210,000
b. Inventory of P210,000
c. Sales of P420,000
d. No entry needed

5. Inventory as of December 31, 2014 is understated by

a. P440,000 b. P370,000 c. P230,000 d. P50,000

As part of your audit of receivables of JAS Corp., you performed a cut-off test of sales.
Results of the cut-off test revealed the following:

Recorded as Sales in December 2017

Selling price Cost Terms Shipment Received by
Date customers

P15,000 P12,500 FOB shipping point 12/26/2017 12/29/2017

14,500 12,000 FOB destination 12/29/2017 12/30/2017

8,650 7,200 FOB destination 12/28/2017 01/02/2018

7,000 5,500 FOB shipping point 12/30/2017 01/03/2018

7,500 6,400 FOB shipping point 12/29/2017 01/04/2018

15,000 12,000 Shipped to consignee 12/31/2017 01/05/2018

Recorded Sales in January 2018

Selling price Cost Terms Shipment Received by
Date customers

P21,000 P18,200 FOB shipping point 12/29/2017 01/03/2018

10,500 8,800 FOB destination 12/30/2017 01/03/2018

4,500 3,200 FOB destination 01/03/2017 01/04/2018

A count of all inventories within the premises was made in the morning of December 29,
2017 after deliveries were made during the day. The total cost of the count was
recorded as inventories as of December 31, 2017. The goods shipped to consignees are 30%
unsold at December 31.
The unadjusted ledger balances show the following:
Accounts receivables P300,000

Inventories 250,000

Sales 1,200,000

Cost of sales 650,000

Determine the adjusted balances of the following:

6. Accounts Receivable
7. Inventories
8. Sales
9. Cost of sales

Baby Company of the Makati uses a periodic inventory system and a fiscal year
ending June 30. The company makes all its merchandise purchases and sales on
credit. The following information is available from the company’s inventory

Beginning inventory, July 1, 2016 P400,000

Purchases, July 1, 2016 to June 30, 2017 1,800,000
Sales (Gross profit at 40% based on sales) 4,210,000
Ending inventory, June 30, 2017 per physical count on the 570,000
same date
Accounts receivables 660,000
Accounts payable 525,000

The following transactions occurred near the end of the fiscal year:
a. Goods costing P80,000 received on June 27 were recorded as purchases twice.
b. Goods shipped by rail from Makati to a Naga customer were recorded as a sale
on July 2 at P120,000. The goods were shipped on June 29, FOB Makati.
Goods were still in transit as of the fiscal year end.
c. Goods were received on July 2 and were recorded as purchase on the same
date. The supplier’s invoice indicates however that goods were shipped on June
28 and that the invoice price of P70,000. The freight cost amounting to P2,000
was paid by the Baby Company in behalf of the supplier.
d. Goods costing P90,000 were recorded as purchases on June 25. A Legaspi City
supplier shipped the goods to Makati by rail, FOB Makati on June 30. Goods are
still in transit as of June 30.
e. Goods costing P90,000 held by Kabalen Company on consignment were not
counted. Baby Company recorded the related sales when it shipped the goods
to Kabalen on June 23.
f. Goods costing P76,000 were received on June 18 and returned for a credit on
June 20 because they were not satisfactory. Baby Company did not record yet
these events. Inventories were included in the count.

10.What is the correct inventory balance as of June 30, 2017?

11.What is the correct cost of sales for the fiscal year ended June 30, 2017?
12.What is the adjusted balance of Accounts Receivable?
13.What is the adjusted balance of Accounts payable?
14.What is the net adjustment to net income as a result of the audit?