H0032

I. Solve the Problem and give what is asked for.

1. Octagon Data Computer Corporation reported a net loss for the year. In its financial
statements, the company noted:

Balance Sheet:

Current assets:
Inventories (notes 1C and 2) …………………………………P 48,051,000

Note 1C: Inventories are stated at the lower of cost or market. Cost is determined on a first-
in, first-out (FIFO) basis.

Note 2: Declining…..market conditions during the fiscal year adversely affected anticipated
sales of the Company’s older printing products; Accordingly, the statement of loss….
Includes a (debit) of P 9,600,000.

Required:

a. At which amount did Octagon report its inventory, cost or market value? How can
you tell?

b. If the reported inventory of P 48,051,000 represents market value, what was the
cost of the inventory?

2. Amsterdam Hospital Supply Corporation reported using the LIFO inventory method. Its
inventory amount was P 490.5 million.

Required:

a. Suppose that during the period covered by this report, the company made an
error that understated its inventory by P 15 million. What effect would this
error have on cost of goods sold and gross margin of the period? On cost of
goods sold and gross margin of the following period? On total gross margin
on both periods combined?

b. When Amsterdam Hospital Supply reported the above amount for inventory,
prices were rising. Would FIFO or LIFO have shown a higher gross margin?
Why?

3. Glen Retail Store has a beginning inventory of P 200,000 at cost and P 400,000 at retail.
Purchases were P 1,200,000 at cost and P 2,100,000 at retail. Sales were P 2,000,000.
How much is ending inventory at cost and at retail?

4. King’s Beginning inventory was P 350,000, purchases were P 1,460,000 and sales totaled
to P 2,400,000. With a normal gross margin rate of 35 percent, how much is ending
inventory?

Assignment 6 * Property of STI

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