Chapter 27 – Inventory Inclusion

Abegail C. Mendoza
Ma. Hazel R. Mendoza
Jasmine Lorraine S. Oruga

Problem 27-1 (AICPA Adapted)

 
Hero Company reported inventory on December 31, 2019 at P6,000,000 based on a physical
count of goods priced at cost and before any necessary year-end adjustments relating to the
following:

 Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2019. These goods had a cost of P125,000 and were picked up by the carrier
on January 7, 2020.
 Goods shipped FOB shipping point on December 28, 2019, from a vendor to Hero were
received and recorded on January 4, 2020. The invoice cost was P300.000.

What amount should be reported as inventory on December 31, 2019?

a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000

Solution:

Physical count 6, 000,000

Goods shipped FOB shipping point on December 30, 2019 to Hero and
received January 4, 2020 300,000
Inventory, December 31, 2019 6,300,000

The goods costing P125,000 are properly included in the December 31, 2019 physical count
because the goods are shipped FOB shipping point only on January 7, 2020 when picked up by
common carrier
Problem 27-2 (AICPA Adapted)
 
Madel Company revealed in inventory on December 31, 2019 at P3,250,000 based on a physical
count priced at cost before any necessary adjustment for the following:

 Merchandise costing P300,000 shipped FOB shipping point from a vendor on December 31,
2019 was received on January 5, 2020.

 Merchandise costing P220,000 shipped FOB destination from a vendor on December 28,
2019 was received on January 3, 2020.

 Merchandise costing P380,000 shipped to a customer FOB destination on December 28,

2019 arrived at the customer location on January 6, 2020.

 Merchandise costing P120,000 was being held on consignment by Trisha Company, a

consignee of Madel Company.

What amount should be reported as inventory on December 31, 2019?

a. 3,670,000
b. 3,930,000
c. 4,050,000
d. 3,050,000

Solution:

Physical count 3,250,000

Merchandise shipped FOB shipping point December 30, 2019 received
January 5, 2020 300,0000
Merchandise shipped to customer FOB destination December 28, 2019
received by customer January 6, 2020 380,000
Merchandise out on consignment held by consignee 120,000
Inventory- December 31, 2019 4,050,000

The Merchandise shipped FOB destination December 28, 2019 from a vendor was properly
excluded because it was received January 3, 2020.
Problem 27-3 (AICPA Adapted)
 
Colombia Company reported the December 31, 2019 inventory at P2,500,000. The entity
revealed the following transactions.

 Goods shipped to the entity FOB destination on December 26, 2019 were received on
January 2, 2020. The invoice costs of P300,000 is included in the preliminary inventory
balance.

 At year-end the entity held P250,000 of merchandise on consignment from another entity.
This merchandise is included in the preliminary inventory balance.

 On December 29, 2019 merchandise costing P100,000 was shipped to a customer FOB
shipping point and arrived at the customer location on January 3, 2020. The merchandise is
not included in the preliminary inventory balance.

 At year-end the entity had merchandise costing P150,000 out on consignment with the
another entity. The merchandise is not included in the preliminary inventory balance.

1. What amount of pretax adjustment is required to restate retained earnings on January 1, 2020?

a. 2,100,000
b. 2,200,000
c. 2,400,000
d. 2,500,000

Solution:

Reported Inventory 2,500,000

Goods in transit purchased FOB destination inventory incorrectly included (300,000)
Merchandise held on consignment incorrectly included (250,000)
Merchandise out on consignment incorrectly excluded 150,000
Inventory- December 31, 2019 2,100,000

The merchandise costing P100,000 shipped to customer FOB shipping point is correctly not
included in the inventory balance.
Problem 27-4 (AICPA Adapted)

Reverend Company conducted a physical count on December 31, 2019 which showed inventory
with a total cost of P5,000,000.

However, further investigation revealed that the following items were excluded from the count.

 Goods sold to a customer which are being held for the customer to call at the customers
convenience with a cost of P200,000.

 A packing case containing a product costing P500,000 standing in the shipping room was not
included in the physical count because it was marked “hold for shipping instructions”.

 Goods in process costing P300,000 held by an outside processor for further processing.

 A special machine costing P250,000, fabricated to order for a customer, was finished and
specifically segregated at the back part of the shipping room on December 31, 2019.

The customer was billed on that date and the machine was excluded from inventory although
it was shipped on January 2, 2020.

What amount should be reported as inventory on December 31, 2019?

a. 6,000,000
b. 6,250,000
c. 6,050,000
d. 5,800,000

Solution:

Physical count 5, 000,000

Goods in process 300,000
Inventory marked “hold for shipping instructions” 500,000
Inventory- December 31, 2019 5,800,000
Problem 27-5 (IAA)
 
Baritone Company counted and reported the ending inventory on December 31, 2019 at
P2,000,000.

None of the following items were included when the total amount of the ending inventory was
computed:

Goods located in the entity's warehouse that are on

consignment from another entity 150,000
Goods sold by the entity and shipped
FOB destination were in transit
on December 31, 2019 and received by the
customer on January 2, 2020 200,000
Goods purchased by the entity and shipped
FOB seller were in transit on December 31, 2019
and received by the entity on January 2, 2020 300,000
Goods sold by the entity and shipped
FOB shipping point were in transit
on December 31, 2019 and received by the
customer on January 2, 2020 400,000

What amount should be reported as inventory on December 31, 2019?

a. 2,500,000
b. 2,350,000
c. 2,900,000
d. 2,750,000

Solution:

Reported inventory 2,000,000

Goods sold in transit, FOB destination 200,000
Goods purchased in transit, FOB seller 300,000
Inventory - December 31, 2019 2,500,000

The term FOB seller is the same as FOB shipping point.

Problem 27-6 (IAA)

Joy Company conducted a physical count on December 31, 2019 which revealed inventory with
a cost of P4,410,000.

The following items were excluded from the physical count:

Merchandise held by Joy on consignment 610,000

Merchandise shipped by Joy FOB destination to a
customer on December 31, 2019 and was received
by the customer on January 5, 2020 380,000
Merchandise shipped by Joy FOB shipping point to a
customer on December 31, 2019 and was received
by the customer on January 5, 2020 460,000
Merchandise shipped by a vendor FOB destination on
December 31, 2019 and was received by Joy on
January 5, 2020 830,000
Merchandise purchased FOB shipping point was
shipped by the supplier on December 31, 2019
and received by Joy on January 5, 2020 510,000

What amount should be reported as inventory on December 31, 2019?

a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000

Solution:

4,410,00
Physical count
0
Merchandise sold in transit, FOB destination 380,000
Merchandise purchased in transit, FOB shipping point 510,000
5,300,00
Inventory - December 31, 2019 0
Problem 27-7 (AICPA Adapted)

Black Company reported accounts payable on December 31, 2019 at P4,500,00 before any
necessary year-end adjustments relating to the following transactions:

 On December 27, 2019, Black wrote and recorded checks to creditors totaling P2,000,000
causing an overdraft of P500,000 in Black's bank account on December 31, 2019. The
checks were mailed on January 10, 2020.

 On December 28, 2019, Black purchased and received goods for P750,000, terms 2/10,
n/30. Black records purchases and accounts payable at net amount. The invoice was
recorded and paid January 3, 2020.

 Goods shipped F.O.B. destination on December 20, 2019 from a vendor to Black were
received January 2, 2020. The invoice cost was P325,000.

On December 31, 2019, what amount should be reported as accounts payable?

a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,500

Solution:

4,500,00
Accounts payable per book
0
2,000,00
Undelivered checks to creditors
0
Goods purchased and received on December 28, 2019 750,000

Purchase discount (2% × 750,000) (15,000

) 735,000
7,235,00
Total accounts payable
0

Adjusting entry for the undelivered checks

Cash 2,000,000
Accounts Payable 2,000,000
Problem 27-8 (AICPA Adapted)
 
Kew Company reported accounts payable on December 31, 2019 at P2,200,000 before
considering the following data:

 Goods shipped to Kew FOB shipping point on December 22, 2019, were lost in transit. The
invoice cost of P40,000 was not recorded by Kew. On January 7, 2020, Kew filed a P40,000
claim against the common carrier.

 On December 27, 2019, a vendor authorized Kew to return, for full credit, goods shipped and
billed at P70,000 on December 3, 2019. The returned goods were shipped by Kew on
December 28, 2019. A P70,000 credit memo was received and recorded by Kew on January
5, 2020.

 On December 31, 2019, Kew has a P500,000 debit balance in accounts payable to Ross, a
supplier, resulting from a P500,000 advance payment for goods to be manufactured.

What amount should be reported as accounts payable on December 31, 2019?

a. 2,170,000
b. 2,680,000
c. 2,730,000
d. 2,670,000

Solution:

Accounts payable per book 2,200,000

Goods shipped FOB shipping point on December 22, 2019
and lost in transit 40,000
Purchase returns (70,000)
Advance payment erroneously debited to accounts payable 500,000
Adjusted accounts payable 2,670,000

Kew Company shall suffer the loss of the goods in transit because the goods are shipped FOB
shipping point.

Appropriately, Kew Company must file a claim against the common carrier.
Problem 27-9 (AICPA Adapted)
 
Ashwood Company reported accounts payable on December 31, 2019 at P900,000 before any
necessary year-end adjustments relating to the following:

 Goods were in transit from a vendor to Ashwood on December 31, 2019. The invoice cost
was P50,000 and the goods were shipped FOB shipping point on December 29, 2019. The
goods were received on January 4, 2020

 Goods shipped FOB shipping point on December 20, 2019 from a vendor to Ashwood were
lost in transit.

The invoice cost was P25,000. On January 5, 2020, Ashwwood filed a P25,000 claim against
the common carrier.

 Goods shipped FOB destination on December 21, 2019 from a vendor to Ashwood were
received on January 6, 2020. The invoice cost was P15,000

What amount should be reported as accounts payable on December 31, 2019?

a. 925,000
b. 940,000
c. 950,000
d. 975,000

Solution:

Accounts payable per book 900,000

Goods in transit FOB shipping point 50,000
Goods shipped FOB shipping point lost in transit 25,000
Adjusted accounts payable 975,000

The goods shipped FOB Destination on December 31, 2019 are excluded because the goods
were received on January 6, 2020.
Problem 27-10 (AICPA Adapted)
 
Bakun Company began operation late in 2018. For the first quarter ended March 31, 2019, the
entity provided the following information:

Total merchandise purchased through March 31, 2019

recorded at net 4,900,000
Merchandise inventory on January 1, 2019
at selling price 1,500,000

All merchandise was acquired on credit and no payments have been made on accounts payable
since the inception of the entity.

All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10, n/30.
No sales were made in 2019.

What amount of cash is required to eliminate the current balance in accounts payable?

a. 6,000,000
b. 5,900,000
c. 6,400,000
d. 5,750,000

Solution:

Purchases through March 31, 2019 (4,900,000 / 98%) 5,000,000

Inventory – 1/1/2019, at cost (1,500,000 / 150%) 1,000,000
Total gross amount to be paid 6,000,000