PROBLEM 1:

Presented below is a list

of items that may or may not be reported as inventory in a company’s

December 31, balance sheet:

Cost of goods out on consignment at another company’s store

P2,400,000Goods sold on installment basis 300,000Goods in transit purchased FOB shipping point 360,000Goo
ds in transit purchased FOB destination 600,000Cost of goods sold to another company, for which the company
has signed
anagreement to repurchase at a set price that covers all costs related to the inventory 900,000Cost of goods
sold where large returns are predictable 840,000Cost of goods in transit sold FOB shipping point 360,000Frei
ght charges on goods purchased 240,000Factory labor costs incurred on goods still unsold 150,000Interest co
st incurred for inventories that are routinely manufactured 120,000Costs incurred to advertise goods held for
resale 60,000Materials on hand not yet placed into production 1,050,000Office supplies 30,000Raw materials
on which the company has started production, but which
arenot completely processed 840,000Factory supplies 60,000Costs of goods held on consignment from another
company 1,350,000Costs identified with units completed but not yet sold 780,000Cost of goods in transit sold
FOB destination 120,000Temp. investment in stocks and bonds that will be resold in the near future 1,500,000
1.

How much of these items would typically be reported as inventory in the financial statements?a.

6,900,000 b. 6,000,000 c. 6,780,000 d. 6,660,000

PROBLEM 2:

The following accounts were extracted from the unadjusted trial balance of Silang Corp. as ofDecember 31,
2014:Cash
963,200Accounts receivables 2,254,000Merchandise inventory 6,050,000Accounts payable 4,201,000Accrued
expenses 60,400During your audit, you discovered that the client held its cash records open even after year
end.Audit notes:a.

Collections for January 2015 of P654,600 were recorded in the December 2014 cash records.The receipts of
P360,100 represents cash sales with the balance representing collections fromcustomers who paid within the
5% cash discount period.b.

Accounts payable of P372,400 was paid in January 2015. The payments on which a P12,400 cashdiscount has
been taken were included in the December 31, 2014 check register.c.
Merchandise inventory as stated in the trial balance represented the result of the countconducted on
December 30, 2014 on inventories on hand. The following information werefound to be relevant in your audit of
inventories:

Goods valued at P275,000 are on consignment with a customer and were not includedin the physical count

Goods costing P217,500 were received from a vendor on January 4, 2015. The relatedinvoice was received and
recorded on January 6, 2015. These goods were shipped bythe vendor on December 31, 2014 under an FOB
shipping point terms.

Goods costing P637,500 were shipped on December 31, 2014, and were received by thecustomer on January 2,
2015. The terms of the invoice were FOB shipping point.The sales of P815,000 has been recorded in 2014.

A shipment of goods invoiced at P182,000 to a customer on December 29, terms FOBdestination was recorded
in 2015. The cost of the related goods amounted to P130,000and were received by the customer on January 4,
2015.

The invoice for goods costing P175,000 was received and recorded as purchase onDecember 31, 2014. The
related goods, shipped FOB Destination were received onJanuary 4, 2015.

Goods valued at P612,800 are on consignment from a vendor. These goods wereexcluded from the physical
count.Requirements: Based on the result of your audit ascertain the following:2.

Adjusted balance of Cash:a.

963,200 c. 681,000b.
693,400 d.668,6003.

Adjusted balance of Accounts receivable:a.

2,254,000 c. 2,564,000b.

2,548,500 d. 2,908,6004.

Correct Inventory ending balance:a.

5,010,000 c. 6,035,000b.

5,860,000 d. 6,080,0005.

Net adjustment to cost of sales:a.

debit by P57,500 c. credit by P580,000b.

debit by P232,500 d. credit by P555,3006.

Adjusted accounts payable:a.

4,243,500 c. 4,615,900b.

4,398,400 d. 4,790,9007.

Correct working capital ratio:a.

2.20 c. 1.85b.

1.98 d. 1.80
PROBLEM 3:

In your audit of the December 31, 2014 financial statements of Ivy Inc., you found the followinginventory
related transactions:a.

Goods costing P100,000 are on consignment with a customer. These goods were invoiced atnormal profit margin
which was at 40% based on cost and was recorded as 2014 sales. Beingoffsite on the count date which was on
December 30, 2013, the goods were not included in thephysical count.b.

Goods costing P33,000 were delivered to Ivy Inc. on January 4, 2015. The invoice of these goodswere received
and recorded on January 10,2015. The invoice showed the shipment was madeon December 29, 2014, FOB
shipping point.c.

Goods costing P40,000 were shipped FOB shipping point on December 31, 2014, and werereceived by the
customer on January 2, 2015. Although sale was recorded in 2014, these goodswere included in the 2014
inventory.d.

Goods costing P16,000 were shipped to a customer on December 30, 2014, FOB destination.These goods were
received by the customer on January 5, 2015 and were not included in thephysical count. The sale was properly
recorded in 2015.e.

Goods costing P22,000 shipped by a vendor under FOB destination term, were received onJanuary 3, 2015. The
related invoice however, were received on December 31, 2014, thus wasrecorded as purchase in 2014.f.

Goods costing P50,000 were received from a vendor under consignment term. These goodswere included in the
physical count. No purchase related to the inventory had been recordedyet.

g.

Ivy Inc., recorded as 2014 sale a P112,000 invoice for goods delivered to a customer onDecember 32, 2014,
FOB Destination. The goods were received by the customer on January5, 2015. Having been delivered
after the count date, the goods were included in the physicalcount.Requirements:8.

What is the net adjustment to inventories as of December 31, 2014?a.

59,000 c. 50,000b.
43,000 d. 66,0009.

Assuming all sales are on account, what is the net adjustment to accounts receivable as ofDecember 31, 2014?
a.

260,000 c. 140,000b.

252,000 d. 212,00010.

Assuming all purchases are on account, what is the net adjustment to accounts payable?a.

22,000 c. 11,000b.

33,000 d. 55,00011.

What is the effect of the errors to the 2014 net income?a.

194,000 c. 164,000b.

220,000 d. 204,000

PROBLEM 4:

Bird Company is a manufacturer of small tools. The following information was obtained from the

company’s accounting records for the year

ended December 31, 2014:

Inventory at December 31, 2014 (based on physical count in Bird’s

warehouse at cost on December 31, 2014) P1,870,000Accounts payable at December 31, 2014 1,415,000Net sa
les (sales less sales returns) 9,693,400Your audit reveals the following information:a.

The physical count included tools to be shipped to a customer FOB shipping point on December31, 2014. These
tools cost P64,000 and were billed at P78,500 and were recorded as Decembersales. They were physically
segregated awaiting shipping instructions from the customer.b.
Goods shipped FOB shipping point by a vendor were in transit on December 31, 2014. Theseinvoice amounting to
P93,000 were received in January 2015 and were recorded as purchasesupon receipt.c.

Work in process inventory costing P27,000 was sent to a job contractor for further processing.d.

Not included in the physical count were goods returned by customers on December 31, 2014.These goods
costing P49,000 were inspected and returned to inventory on January 7, 2015.Credit memos for P67,800 were
issued to the customers at that date.e.

In transit to a customer on December 31, 2014, were goods costing P17,000 shipped FOBdestination on
December 26, 2014. A sales invoice for P29,400 was issued on January 3, 2015,when Bird Company was notified
by a customer that the tools had been received.f.

At exactly 5:00 pm on December 31, 2014, goods costing P31,200 were received from a vendor.These were
recorded on a receiving report dated January 2, 2015. The related invoice wasrecorded on December 31, 2014,
but the goods were not included in the physical count.g.

Included in the physical count were goods received from a vendor on December 27, 2014.However, the related
invoice for P36,000 was not recorded because the accounting

department’s copy of the receiving report was lost.

h.

A monthly freight bill for P16,000 was received on January 3, 2015. It specifically related tomerchandise
bought in December 31, 2014, one-half of which was still in the inventory at:December 31, 2014. The
freight was not included in either the inventory or in accounts payableat December 31, 2014.

Based on the preceding information, compute the December 31, 2014, adjusted balance of thefollowing:A
B C D12.

Inventory 2,095,200 2,031,200 2,046,200 2,078,20013.

Accounts payable 1,552,000 1,560,000 1,467,000 1,591,20014.

Net sales 9,614,900 9,576,500 9,625,600 9,547,100

PROBLEM 5:

You are making an audit of the Malaguku Co. for the year ended December 31, 2014. You have observedthe
taking of physical inventory and have noted that all merchandise actually received up to the close ofbusiness,
December 28, 2014, were included on the inventory sheets. The total of the physicalinventory, at invoice cost
is P175,000, while the purchase account shows a balance of P1,750,000 as ofDecember 31, 2014.You noted also
the following purchases invoices have been recorded in the voucher register as
follows:DECEMBERRR. 2014 VOUCHER INVOICE DATE TERMS MERCHANDISENo. REGISTER RECEIVED631
P 2,000 December 26 Shipping point December 29632 4,000 December 26 Destination January 5633 9,000 Ja
nuary 2 Destination December 30634 8,000 December 31 Shipping point January 4635 1,000 January 7 Shippi
ng point December 28636 6,000 January 3 Shipping point January 6JANUARYRR. 2015 VOUCHER INVOICE D
ATE TERMS MERCHANDISENo. REGISTER RECEIVED637 P 8,500 December 20 Destination January 8638 7,
200 January 2 Shipping point December 27639 11,700 December 28 Destination January 7640 6,900 Decembe
r 30 Destination January 6641 4,100 January 2 Destination December 25Requirements:15.

What is the adjusted balance of Purchases for the period ended December 31, 2014?a.

1,751,300 c. 1,753,200b.

1,743,800 d. 1,751,20016.

What is the adjusted balance of the Inventory account as of December 31, 2014?a.

175,000 c. 194,000b.

186,000 d. 198,100

PROBLEM 6:

You are engaged in the audit of the inventory of the Kula Inc. as of December 31, 2014. The company ison
physical inventory basis. The physical inventory was actually taken on December 29, 2014 rather than

the evening of December 31, so that the company employees might enjoy the New Year’s festivities. You

have observed the taking of the physical inventory. As taken, the physical inventory included onlymerchandise
received through December 29. The subsequent compilation of the inventory includes onlythe merchandise
physically counted and is not yet recorded on the books. After having completedappropriate work on the
inventory as compiled, you make additional tests to determine:a.

The correct cut off the purchases account for the year 2014. (it is the company policy torecognize purchases
based on freight terms and the passage of title). The ledger balance isP650,000.b.
The correct amount of the inventory to be stated on a comparable basis with acquisition costs(purchases) and
sales. The inventory summary shows a total of P27,000.