Chapter

07 Inventories
Problem 7-1: Cost At Initial Recognition
A retailer imported goods at a cost of P260,000 including P40,000 non-refundable import dues
and P20,000 refundable purchase taxes. The risk and rewards of ownership of the imported
goods were transferred to the retailer upon collection of the goods from the harbor warehouse.
The retailer was required to pay for the goods upon collection. The retailer incurred P10,000 to
transport the goods to its retail outlet and a further P4,000 in delivering the goods to its
customer. Further selling cost of P6,000 was incurred in selling the goods. What amount should
the inventory be valued?

Problem 7-2: Cost At Initial Recognition

On January 1, 2012, the entity purchased raw materials to be consumed in the production
process for P550,000 including P50,000 refundable purchase taxes. The purchase price was
funded by raising a loan of P555,000 (including a P5,000 loan raising fee). The loan is secured
by the inventories. In January 2012 the entity designed the corporate gifts for the customer, the
design cost included: Cost of external designer, P7,000, and Labor cost, P3,000. In February
2012 the entity's production team developed the manufacturing technique and made further
modifications necessary to bring the inventories to the conditions specified in the agreement.
The following cost was incurred in the testing phase; Material Net of P3,000 Recovered from the
sale of the scrapped output, P21,000; Labor, P11,000 and depreciation of plant used to perform
the modification, P5,000. During February 2012 the Entity incurred the following additional cost
in manufacturing the customized corporate gifts; consumable stores, P55,000; labor, P65,000,
and depreciation of the plant used to perform the modifications, P 15,000. The customized gifts
were ready for sale on March 1, 2012. No abnormal wastage occurred in the development and
manufacture of the corporate gifts. What is the cost of the finished inventory of customized
gifts?

Problem 7-3: Cost At Initial Recognition

A broker-trader was purchasing oil and entered into a forward contract to buy the oil at a forward
contracted price of P1,400,000. At the time of delivery, the spot price of the oil is P1,500,000
and the forward contract had a fair value of P100,000. At what amount should the oil be
recorded initially

Problem 7-4: Correct Inventory (7-1)

The balance in Page Company's inventory account on Dec 31, 2014, was P1,225,000 before
the following information was considered:

● Goods shipped FOB destination on Dec 20, 2014, from a vendor to Page were lost in
transit. The invoice sot of P45,000 was not recorded by Page. On Dec 28, 2014, Page
notified the vendor of the lost shipment

● Goods were in transit from a vendor to Page on Dec 31, 2014. The invoice cost was
P60,000 and the goods were shipped FOB shipping point on December 28, 2014. Page
received the goods on Jan 1, 2015

What amount of inventory should be reported in the Dec 31, 2014 statement of financial
position?
A. P1,225,000 C. P1,285,000
B. P1,270,000 D. P1,330,000

Problem 7-5: Correct Inventory

Alca Company's inventory at June 30, 2014, was P750,000 based on a physical count of goods
priced at cost and before necessary year-end adjustment relating to the following
 ● Included in the physical count were goods billed to a customer FOB shipping point on
June 30, 2014. These goods costing P15,000 were picked up by the carrier on July 9,
2014

● Goods shipped FOB destination on June 28, 2014, from a vendor to Alca was received
on July 1, 2014. The invoice cost was P25,000

What amount should Alca Report as inventory in its June 30, 2014 statement of financial
position?
A. P735,000 C. P750,000
B. P740,000 D. P765,000

Problem 7-6: Correct Inventory

Violet Company's inventory at December 31, 2014, was P5,000,000 based on physical count
priced at cost and before any necessary adjustment for the following:
Merchandise costing P200,000 shipped FOB shipping point from a vendor on Dec 30, 2014,
was received and recorded on Jan 5, 2015
Goods in the shipping area were excluded from inventory, although shipment was not made
until Jan 2, 2015. Goods billed to the customer FOB shipping point on Dec 30, 2014, had a cost
of P800,000
What amount should Violet report as Inventory in its December 31, 2014, statement of financial
position?
5,000,000 + 200,000 + 800,000 = 6,000,000

Problem 7-7: Correct Inventory

The unadjusted physical inventory of Liberty Company at December 31, 2014, was P3,000,000
other information follows:

Goods were received and recorded on Jan 2, 2014, with a cost of P180,000. Information
revealed that the term of the shipment is FOB shipping point and these goods were shipped on
Dec 29, 2014

Merchandise in the warehouse costing P240,000 was billed to customer FOB shipping point on
Dec 29, 2014. These were excluded from inventory but these were shipped on Jan 3, 2015

How much should Liberty report as inventory in its December 31, 2014 statement of financial
position?
3,000,000 + 180,000 +240,000 = 3,420,000

Problem 7-8: Correct inventory

The inventory on hand on Dec 31, 2014, for Conrad Company is valued at a cost of P947,800.
The following items were not included in this inventory amount:
A. Purchased goods in transit shipped FOB destination. Invoice price P32,000 which includes
freight charges of P1,600
B. Goods held on consignment by Conrad at a sales price of P28,000 including sales
commission of 20% of the sales price

C. Goods sold to Ube Company under terms FOB destination invoiced for P24,000 which
includes P1,000 freight charges to deliver the goods. The goods are in transit.
24,000 – 1,000 = 23,000/ 130% = cost of inventory 17,692

D. Purchased goods in transit, terms FOB shipping point invoice price P48,000, Freight Cost
P3,000
48,000 + 3,000 =51,000
E. Goods out on consignment to Can Company, sales price P36,400, Shipping Cost of P2,000
36,400/ 130% = cost 28,000 + 2,000 = 30,000
Mark up on Cost for all sales is 30%
What is the correct cost of inventory to be reported in Conrad's financial statements?
947,800 + 17,692 + 51,000 + 30,000 = 1,046,496

Problem 7-9: Correct Inventory

Power Company reviewed its year-end inventory and found the following items:

A. A package containing a product costing P81,600 was standing in the shipping area when the
physical inventory was conducted. This was not included in the inventory because it was
marked "Hold for shipping instructions". The purchase order was dated Dec 19 but the package
was shipped and the customer was billed on Jan 2, 2015.

B. A special machine fabricated to order for a particular customer was finished and in the
shipping room on Dec30,2014. The customer was billed on that date and the machine was
excluded from the inventory, The machine costing P230,000 was shipped Jan 2, 2014

C. Merchandise costing P23,500 was received on Jan 3, 2014, and the related purchase invoice
was recorded on Jan 5, 2015. The invoice showed the shipment was made Dec 29, 2014, FOB
destination

D. Good costing P150,000 were sold and delivered on Dec 20, 2014 The sale was
accompanied by a repurchase agreement that power will "buy back" the inventory in Feb 2015

How much is the inventory adjustment on Dec 31, 2014?

81,600 + 150,000

Problem 7-10: Correct Inventory

Marker Company has the following information pertaining to its merchandise inventory as of
December 31, 2014
Inventory on hand (including merchandise received
on consignment of P20,000) P200,000
Inventory purchased with a buyback agreement 100,000
Merchandise in transit, FOB shipping point
including P5,000 freight cost 155,000
Merchandise in transit, Free Alongside, including
delivery cost alongside the vessel of P6,000
but excluding the cost of shipment of P3,000 250,000
Merchandise in transit, CIF( including insurance costs
and freight of P8,000) 175,000
Compute or the value of inventory

200,000 – 20,000 = 180,000

155,000
(250,000 – 6,000 +3,000= 247,000
175,000
Total 757,000

Problem 7-11: Consigned Inventory

Popeye Company had the following consignment transactions during the year 2014:
Inventory shipped on Consignment to Olive Consignee P600,000
Freight paid by Popeye 40,000
Inventory received on consignment from Brutus,
consignor 1,000,000
Freight paid by Brutus 100,000
No sales of consigned goods were made through December 31, 2014
How much should Popeye include as consigned inventory in its Dec 31, 2013 statement of
financial position?
Problem 7-12: Consigned Inventory
On October 1, 2014, Saint Company consigned 50 sewing machines to Matthew Company for
sales at P20,000 each and paid P40,000 in transportation cost. On December 31, 2014,
Matthew reported the sale of 30 sewing machines and remitted P510, 000. The remittance was
net of the agreed 15 commission. What amount should Saint recognize as consignment sales
revenue for 2014?
540,000

Problem 7-13: Consigned Inventory

On December 1, 201 Super Store received 1,000 leather jackets on consignment from Star
Company. Star's cost for the leather jackets was P1,600 each, and they were priced to sell at
P2,000. The commission rate was 10% 200 leather jackets remained. What amount should
Superstore report as payable consigned goods in its Dec 31, 2014 statement of financial
position?
1,000 units – 200 x P2,000
Less: 1,600,000 x 10%

Problem 7-14: Consigned Inventory

B Company had the following consignment transactions during December 2014.
Inventory shipped on consignment to C company P36,000
Freight paid by B 1,800
Inventory received on Consignment from D 24,000
Freight paid by D 1,000

No sales of consigned goods were made through Dec 31, 2014

What amount of consigned inventory should be included in B's Dec 31, 2014 statement of
financial position?

Problem 7-15: Cost of Sales

Feelings Company sold selected merchandise on a consignment basis during 2014. Feelings'
2014 accounting records show the following information
Inventory Jan 1 P244,000
Inventory on Hand Dec 31 290,000
Inventory on Consignment Dec 31 40,000
Purchases 1,080,000
Freight-in 20,000
Freight-out to customers 70,000
Freight-out to consignees 10,000

What amount should Feelings report as cost of goods sold in its 2014 statement of
comprehensive income?

START HERE

Problem 7-16: Inventoriable Cost

On December 28, 2014, Lancelot Company purchased goods costing P1,000,000 the terms
were, FOB, destination
The following cost was incurred in connection with the sale and delivery of the goods:
Packaging for Shipment P20,000
Shipping 30,000
Special Handling charges 40,000
These goods were received on Dec 31, 2014
In Lancelot's Dec 31, 2014 statement of financial position how much of these goods should be
included in the Inventory?

Problem 7-17: Inventoriable Cost

The following information applies to Agony, Inc for 2014:
Merchandise purchased for resale P400,000
Freight-In 10,000
Freight-out 5,000
Purchase returns 2,000
How much is Agony's 2014 inventoriable cost?

Problem 7-18: Cost of Sales

The accounting records of Token Company show the following information for 2014
In Store
Inventory, Dec 31 P290,000
Inventory Jan 1 220,000
Purchases 960,000
Freight-in 20,000
Freight-out 60,000

Out on Consignment
Inventory, Dec 31 P40,000
Inventory, Jan 1 24,000
Shipment from consignor? 120,000
Freight out to Consignees 10,000
Freight out 16,000
What would be the cost of sales of Token for 2014?

Problem 7-19: Discount Lost

Datacore, A computer shore in Virra Mall, Greenhills, specializes in the sales of IBM
compatibles ad software packages and had the following transaction with one of its suppliers:
Purchases if IBM compatibles P328,000
Purchases of commercial software package 90,000
Returns and Allowances 8,000
Purchase discounts taken 2,700

Purchases were made throughout the year on terms 3/10, n/60. All returns and allowances took
place within 5 days of purchase and prior to payment of account. How much is the discount
lost?

Problem 7-20: Cost Allocation

On March 1, 2014, Good Company purchased a tract of land for P18,000,000. Good incurred an
additional cost of P4,500,000 during the remainder of the year 2014 in preparing the land for
sale. The land was subdivided into residential lots as follows:
Lot class number of lots sales price per love
A 100 P240,000
B 100 150,000
C 200 100,000
Using the relative sales value method, how much should be allocated to Class A lot?

Problem 7-21: Net Method of Recording Purchases

Canary Menswear regularly buys shirts from Ube company and is allowed to trade discounts of
20% and 10% from the list price. Canary purchased shirts on May 9, 2013, and received an
invoice with a list price amount of P50,000 and payment terms of 2/10, n30/ Canary sees the
net method of recording purchases. At what amount should Canary record the purchases?

Problem 7-22: Cash and Trade Discounts

Illuminations, Inc an interior light design company offers both trade and quantity discounts.
Quantity discounts are shown below:
Quantity Purchased Discount rate
1-9cans 0%
10-19 cans 5%
more than 20 cans 8%
Dealers also receive a 5% discount on the list price per lighting fixture before any quantity
discount is given. Cash buyers receive an additional 2% of the total retail price. The retail price
of each super light is P140

How much should be debited to the accounts receivable account if Juan Dela Cruz a lighting
specialist purchase 35 pieces of superlight on the account?

Problem 7-23: Cash and Trade Discounts

On June 1, 2014, Pitt Corp sold merchandise with a list price of P50,000 to Bull on the account.
Pitt allowed trade discounts of 30%, 20%, and 10%. Credit terms were 2/15,n/40 and the sales
were made FOB destination. Bull paid P2,000 of delivery cost. On June 12, 2014, How much
did Pitt receive from Bull as full payment?

Problem 7-24: Cost of Sales & Operating Profit

Clothes Inc maintains a markup of 60% based on cost. The company's selling and
administrative expenses average 30% of sales. Annual sales were P1,440,000. How much
should the corporation record as its cost of sales and operating profit for the year?

Problem 7-25: Cost of Sales

Tape Company reported the following balances at Dec 31, 2015 and 2014:
December 31, 2015 December 31, 2014
Inventory P2,600,000 P2,900,000
Accounts Payable 750,000 500,000

The company paid its suppliers P4,900,000 during the year ended December 31, 2015. How
much tape report as Cost of goods sold in its December 31, 2015, statement of comprehensive
income?

Problem 7-26: Cost of Sales

Handmaids Company sells one product which it purchases from various suppliers. Handmaids
trial balance at Dec 31, 2015, including the following items:

Sales P528,000
Sales discounts 7,500
Purchases 368,900
Purchase discounts 18,000
Freight-in 4,800
Freight-out 11,000

Handmaids Company's inventory purchases during 2015 were as follows:

Unit Sold Cost per Unit Total Cost
Beginning inventory, Jan1 8,000 P8.20 P65,600
Purchases quarter ended Mar 31 12,000 8.25 99,000
Purchases quarter ended June 30 15,000 7.90 118,000
Purchases quarter ended Sept 30 13,000 7.50 97,500
Purchases quarter ended Dec 31 7,000 7.70 53,900
55,000 P434,500
Additional Information:
Handmaid’s accounting policy is to report inventory in its financial statements at the lower of
cost or net realizable value applied to total inventory. Cost is determined under the weighted-
average method.

Handmaids had determined that on Dec 31, 2015, the replacement cost of its inventory was
P8.20 per unit and the net realizable was P8 per unit. Handmaid’s normal profit margin is P1.05
per unit the company uses the direct method of reporting losses from market decline of
inventory. What is the total cost of sales for the year 2015?

END