Homework-1

Werth Company asks you to review its December 31, 2014, inventory values and prepare the necessary
adjustments to the books. The following information is given to you. How much the inventory should be
reported as of December 31, 2014?
1. A physical count reveals $234,890 of inventory on hand at December 31, 2014.
2. Not included in the physical count of inventory is $13,420 of merchandise purchased on
December 15 from Browser. This merchandise was shipped f.o.b. shipping point on December
29 and arrived in January. The invoice arrived and was recorded on December 31.
3. Included in inventory is merchandise sold to Bubbey on December 30, f.o.b. destination. This
merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale
on account for $12,800 on December 31. The merchandise cost $7,350, and Bubbey received it
on January 3.
4. Included in inventory was merchandise received from Dudley on December 31 with an invoice
price of $15,630. The merchandise was shipped f.o.b. destination. The invoice, which has not yet
arrived, has not been recorded.
5. Not included in inventory is $8,540 of merchandise purchased from Minsky Industries. This
merchandise was received on December 31 after the inventory had been counted. The invoice
was received and recorded on December 30.
6. Included in inventory was $10,438 of inventory held by Werth on consignment from Jackel
Industries.
7. Included in inventory is merchandise sold to Sims f.o.b. shipping point. This merchandise wasp
shipped after it was counted. The invoice was prepared and recorded as a sale for $18,900 on
December 31. The cost of this merchandise was $10,520, and Sims received the merchandise on
January 5.
8. Excluded from inventory was a carton labeled “Please accept for credit/return.” This carton
contains merchandise costing $1,500 which had been sold to a customer for $2,600. No entry
had been made to the books to reflect the return, but none of the returned merchandise
seemed damaged.
Answered:

1. December 31 inventory per physical count… $ 234,890

2. Goods in transit purchased f.o.b. shipping point… $ 13,420
3. Goods in transit sold f.o.b. destination point… $ -
 4. Goods purchased and received it already… $ -
5. Goods purchased and received it already… $ 8,540
6. Goods on consignments… $ (10,430)
7. Goods in transit sold f.o.b. shipping point… $ (10,520)
8. Goods received from customer… $ 1,500
Total $ 237,400

Homework-2

Presented below is a list of items that may or may not be reported as inventory in a company’s
December 31 balance sheet.
1. Goods sold on an installment basis (bad debts can be reasonably estimated).
2. Goods out on consignment at another company’s store.
3. Goods purchased f.o.b. shipping point that are in transit at December 31.
4. Goods purchased f.o.b. destination that are in transit at December 31.
5. Goods sold to another company, for which our company has signed an agreement to repurchase
at a set price that covers all costs related to the inventory.
6. Goods sold where large returns are predictable.
7. Goods sold f.o.b. shipping point that are in transit at December 31.
8. Freight charges on goods purchased.
9. Interest costs incurred for inventories that are routinely manufactured.
10. Materials on hand not yet placed into production by a manufacturing firm.
11. Costs incurred to advertise goods held for resale.
12. Office supplies.
13. Raw materials on which a manufacturing firm has started production, but which are not
completely processed.
14. Factory supplies.
15. Goods held on consignment from another company.
16. Costs identified with units completed by a manufacturing firm, but not yet sold.
17. Goods sold f.o.b. destination that are in transit at December 31.
18. Short-term investments in stocks and bonds that will be resold in the near future.
Instructions
Indicate which of these items would typically be reported as inventory in the financial statements. If an
item should not be reported as inventory, indicate how it should be reported in the financial statements.

Answer:

1. COGS – Income Statements

2. Inventory – Balance Sheets
3. Inventory – Balance Sheets
4. Not reported
5. Inventory – Balance Sheets
6. COGS – Income Statements
7. COGS – Income Statements
8. Inventory – Balance Sheets
9. Interest expenses – Income Statements
10. Inventory – Balance Sheets
11. Other Expenses – Income Statements
12. Inventory – Balance Sheets
13. Inventory – Balance Sheets
14. Inventory – Balance Sheets
15. Not Reported
16. Inventory – Balance Sheets
17. Inventory – Balance Sheets
18. Short term investments – Balance Sheets

Homework 3
You are asked to travel to Milwaukee to observe and verify the inventory of the Milwaukee branch of
one of your clients. You arrive on Thursday, December 30, and find that the inventory procedures have
just been started. You spot a railway car on the sidetrack at the unloading door and ask the warehouse
superintendent, Buck Rogers, how he plans to inventory the contents of the car. He responds, “We are
not going to include the contents in the inventory.”
Later in the day, you ask the bookkeeper for the invoice on the carload and the related freight bill. The
invoice lists the various items, prices, and extensions of the goods in the car. You note that the carload
was shipped December 24 from Albuquerque, f.o.b. Albuquerque, and that the total invoice price of the
goods in the car was $35,300. The freight bill called for a payment of $1,500. Terms were net 30 days.
The bookkeeper affirms the fact that this invoice is to be held for recording in January.
Instructions
(a) Does your client have a liability that should be recorded at December 31? Discuss.
(b) Prepare a journal entry(ies), if required, to reflect any accounting adjustment required.
(c) For what possible reason(s) might your client wish to postpone recording the transaction?
Answer:

a.) The client has liability to recorded the transaction of goods and freight. As it is stated in the
case that the goods are shipped under f.o.b. shipping point, it means that the title has passed
to the buyer since the seller delivers the goods from the seller’s warehouse. Under f.o.b.
shipping point transportation cost should be paid by the buyer (client).
b.) Inventory $35,300
Account Payable -- Goods $35,300

Inventory $1,500

Account Payable – Freight $1,500

c.) Possible reason to postpone recording the transaction:

 To avoid the impact to financial activity ratios such as inventory turnover due to
additional inventory
 Maintain current ratio
 Avoid additional tax

Homework 4

The management of Tritt Company has asked its accounting department to describe the effect upon the
company’s financial position and its income statements of accounting for inventories on the LIFO rather
than the FIFO basis during 2012 and 2013. The accounting department is to assume that the change to
LIFO would have been effective on January 1, 2012, and that the initial LIFO base would have been the
inventory value on December 31, 2011. Presented below are the company’s financial statements and
other data for the years 2012 and 2013 when the FIFO method was employed.
Answer:

Calculation for Inventory and COGS

12/31/201 12/31/201
Periods 2 3
Beginning Inventory (40,000 x 3.00) 120,000 120,000
Purchases (150,000 x 3.50) 525,000 (180,000 x 4.40) 792,000
Inventory Available 645,000 912,000
COGS (150,000 x 3.50) 525,000 (180,000 x 4.40) 792,000
Ending Inventory 120,000 120,000

*because of LIFO, when the goods are sold, the last input goods will be the first goods to be sold, so
the goods with price 3.5 in 2012 and 4.4 in 2013 will be sold first
Calculation for Income Statements

12/31/2012 12/31/2013
Sales (150,000 x 6) 900,000 (180,000 x 7.5) 1,350,000
COGS (525,000) (792,000)
 Other Expenses (205,000) (304,000)
EBIT 170,000 254,000
Taxes (40%) (68,000) (101,600)
Net Income 102,000 152,400

Calculation for Balance Sheets

a. Cash

12/31/2012 12/31/2013
FIFO Income Tax 76,000 116,000
LIFO Income Tax 68,000 101,600
Cash Increase 8,000 14,400
Cash Adjustment - 8,000
Total Cash Increase 8,000 22,400
FIFO Cash Balance 130,000 154,000
LIFO Cash Balance 138,000.00 176,400

b. Retained Earning

12/31/2012 12/31/2013
FIFO Net Income 114,000 174,000
LIFO Net Income (102,000) (152,400)
Retained Earnings Reduction 12,000 21,600
Adjustment - 12,000
Total Retained Earning Reduction 12,000 33,600
FIFO Retained Earning 200,000 260,000
LIFO Retained Earning 188,000 226,400

So the account for 2013 that would be affected by a change to LIFO are:

Records Method FIFO LIFO

COGS 756,000 792,000
EBIT 290,000 254,000
Income Tax 116,000 101,600
Net Income 174,000 152,400
Cash 154,000 176,400
Inventory 176,000 120,000
Retained Earnings 260,000 226,400
Homework 5

Chemical Co has a one-year contract with Municipality to deliver water treatment chemicals. The
contract stipulates that the price per container will decrease as sales volume increases, as follows:

Volume is determined based on sales during the calendar year. Chemical Co believes that total sales
volume for the year will be 2.5 million containers, based on its experience with similar contracts and
forecasted sales to Municipality.
Question
a) How should Chemical Co determine the transaction price?
b) Please create journal from January – December using IAS 18 and IFRS 15
Answer:
a.) Revenue
1 million x C 100 C 100,000,000
1.5 million x C 90 C 135,000,000
Total Consideration C 235,000,000
Estimated total volume 2.5 million containers
Average price per containers C 94 (C 235,000,000/2.5 million containers)
b.) IAS 18
Debit Cash C 235,000,000
Credit Revenue (2.5 million x C 94) C 235,000,000
IFRS 15
Debit Cash (1million x 100) C 100,000,000
Debit Cash (1.5million x 90) C 135,000,000
Credit Revenue (2.5 million x C 94) C 235,000,000