Problem 1.

You are engaged to audit the financial statements of SUNGJAE Company for the fiscal year ended June 30,
2022. You have observed the taking of the physical inventory on that date. All merchandise received up
to and including June 30, 2022 have been included in the physical count. The invoices for purchases of
merchandise entered in the purchase journal for the months of June and July 2022, respectively are shown
below:

June 2022
FOB Date of invoice Date received Amount
Destination 20-Jun 23-Jun P 34,000
Shipping Point 20-Jun 30-Jun 20,000
Shipping Point 24-Jun 06-Jul 38,000
Destination 04-Jul 29-Jun 150,000
Destination 29-Jun 03-Jul 45,000
Shipping Point 29-Jun 30-Jun 64,000

July 2022
FOB Date of invoice Date received Amount
Destination 03-Jul 30-Jun P 65,000
Shipping Point 28-Jun 05-Jul 20,000
Shipping Point 02-Jul 29-Jun 18,000
Destination 30-Jun 03-Jul 48,000
Destination 28-Jun 30-Jun 30,000
Shipping Point 03-Jul 04-Jul 44,000

The trial balance of SUNGJAE showed the following balances as of June 30, 2022:

Inventory, July 1, 2020 P 900,000

Freight In 82,000
Purchases 8,400,000
Accounts Payable 450,000

The inventory count sheet on June 30 showed a total cost of inventory of P690,000. Unless the goods are
received at an earlier date, the invoice date is the date of shipment by the supplier. You also obtained the
following information:

(a) Goods that had been segregated for certain customers with total sales price of P100,000 were
recorded as sales in June, although deliveries were made in July. 70% of these goods are stock
items, while the remainder were manufactured to customers’ specifications. The corresponding
goods were excluded from the physical count. The company maintains a markup rate of 25% on
sales price.

(b) An invoice for freight amounting to P9,600 was received on July 6, 2022, for purchases made
during the first half of June. 60% of such purchases had already been sold as of June 30.
Required:
(1) Identify the adjustment to the inventory count sheet.
(2) Identify the appropriate audit adjusting entries.
(3) Identify the cost of sales.

Problem 2.

The management of Mingyu Company has engaged you to audit its 2022 financial statements. The
company’s accounting period ends on December 31. You verified that on November 30, the correct
inventory level was 60,000 units. A review of the December purchase orders to various suppliers showed
the following. Only merchandise received up to December 31, 2022 were recorded as purchases by
Mingyu.

Date of
Quantity in
Purchase Invoice Date Date Shipped Date Received Terms
Units
Order
12/02/22 01/04/2023 10,000 01/03/2023 01/04/23 Shipping point
12/11/22 01/04/2023 12,000 12/22/2022 12/23/22 Destination
12/13/22 01/03/2023 14,000 12/28/2022 01/03/23 Shipping point
12/23/22 12/26/2022 10,000 01/03/2023 01/04/23 Shipping point
12/28/22 01/10/2023 8,000 12/31/2022 01/10/23 Destination
12/31/22 01/10/2023 15,000 01/04/2023 01/11/23 Destination

During the month of December, the company recorded the sale of 50,000 units at P125 selling price per
unit. This includes the sale of 14,000 units shipped to Minghao Company, a consignee. A letter received
from Minghao Company indicates that as of December 31, 2022, it had sold 10,000 units and was still
trying to sell the remaining units.

Inventories presented on the client prepared statement of financial position pertain to inventories
actually on hand at yearend.

REQUIRED:

a. Compute the number of units that should be included in the December 31, 2022 inventory.
b. Assuming at a uniform cost of P90 for the inventory, prepare the necessary audit adjusting entries
as at December 31, 2022.