INTERMEDIATE ACCOUNTING 1

INVENTORY ESTIMATION, BIOLOGICAL ASSETS, INVESTMENTS AT FAIR VALUE

NAME:_____________________ DATE:_______ SCORE: _______

PROBLEM 1
The inventory on hand at. the end of 2012 for the Rosas Company is valued at a cost of P87,450. The following items
were not included in
this inventory:
1. Purchased goods in transit, under terms FOB shipping point, invoice price P3,700, freight costs P170.
2. Goods out on consignment to Mariman Company, sales price P2,800, shipping costs of P210.
3. Goods sold to Granger Co. under terms FOB destination, invoiced for P1,700, including P251 freight charges to deliver
the goods. Goods are in transit.
4. Goods held on consignment by the Rosas Company at a sales price of P2,700, including sales commission of 20% of
sales price.
5. Purchased goods in transit, shipped FOB destination, invoice price P2,100 including freight charges of P190.

Required:
Determine the cost of the ending inventory that Rosas should report on its December 31, 2012 balance sheet, assuming
that its selling price is 140% of the cost of the inventory.

PROBLEM 2
The following information were obtained from Katrina’s accounting Records;
Sales for months ended November30 3,400,000
Sales for year ended December 31 3,840,000
Purchases for 11 months ended November 30 2,700,000
Purchases for year ended. December 31 3,200,000
inventory, January 1 350,000
Inventory, November 30 (per physical count) 380,000

Consider the following information:

1. Shipments received in unsalable condition and excluded from physical inventory.
The returns were not recorded because no credit memos were received from vendors.
Total at November 30 4,000
Total at December.3 1 (including the Nov. 30
unrecorded returns) 6,000
2. Deposit made with vendor and charged to Purchases in October.
The good were shipped in January 2012. 8000
3. Deposit made with vendor and charged to Purchases in November
The goods were shipped FOB destination on November29
and were included in the physical inventory as goods in transit. 22,000
4. Shipments received in November and included
in the physical count at November30 but recorded as
December purchases. 30,000
5. Due to the carelessness of the receiving department,
a December shipment was damaged by rain. These
goods were later sold at cost in December. 40,000

Based on the preceding information, determine the following: (1point each)

1. Adjusted net purchases
a. up to November 30
b. Up to December 31 3,186,000
2. Cost of goods sold for 11 months ended November 30, 2012.
3. Gross profit ratio for 11 months ended November 30, 2013
4. Gross profit for the month of December
5. Estimated inventory at December 31, 2012.
PROBLEM 3
On December 31, 2003, a fire at Bernadette Company’s warehouse caused severe damage to its entire inventory. Based on
recent history, Bernadette has a gross profit of 25% on cost. The records of Bernadette for the year ended December 31,
2003 showed beginning inventory of P5,000,000, net purchases of P14,000,000 and net sales of P15,000,000. A physical
inventory disclosed usable damaged goods which can be sold to a jobber for P1,500,000. Using the gross profit method,
the estimated value of goods destroyed by the fire on December 31, 2003 should be

PROBLEM 4
Joemille Company uses the retail inventory method. Information relating to the computation of the inventory at December
31, 2004 is:
Cost Retail
Inventory, January 1 3,000,000 4,000,000
Purchases 17,000,000 24,000,000
Freight in 1,000,000
Net markups 2,000,000
Net markdowns 2,000,000
Sales 20,000,000
Estimated normal shrinkage due to breakage and theft is 5% of sales
The estimated inventory on December 31, 2004, at the lower of cost or market using the retail inventory method should be

PROBLEM 5
Arvin Company is engaged in raising dairy livestock:
Carrying amount of biological asset on January 1, 2013 5,000,000
Increase due to purchase 2,000,000
Gain from change in fair value less cost of disposal attributable to price 400,000
change
Gain from change in fair value less cost of disposal attributable to physical 600,000
change
Decrease due to sales 850,000
Decrease due to harvest 200,000
What is the carrying amount of the biological asset on December 31, 2013?

PROBLEM 6
The following pertains to Smile Company’s biological assets:
Price of the asset in the market P5,000
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get asset to the market 300
Selling price in a binding contract to sell 5,200
The entity’s biological assets should be valued at

PROBLEM 7
A public limited company, Cromwell Dairy Products, produces milk on its farms. As of January 1, 2010 Cromwell
has a stock of 1,050 cows (average age, 2 years old) and 150 heifers (average age, 1 year old). Cromwell purchased
375 heifers, average age 1 year old, on July 1, 2010. No animals were born or sold during the year. The unit values
less estimated costs to sell were
1 - year old animal at December 31, 2010 P3,200
2 - year old animal at December 31, 2010 4,500
1.5 - year old animal at December 31, 2010 3,600
3 - year old animal at December 31, 2010 5,000
1 - year old animal at Jan. 1, 2010 and July 1, 2010 3,000
2 - year old animal at January 1, 2010 4,000
The increase in value of biological assets in 2010 due to price changes is

PROBLEM 8
SANTOL Corporation invested its cash in non trading equity securities during 2013. On initial recognition, the entity
made an irrevocable election to present its securities at fair value through other comprehensive income. As of December
31, 2013, the company’s portfolio consisted of the following:
Investee Company Shares Cost Fair Value
Kelly Inc. 30,000 P450,000 P425,000
Eloy Inc. 60,000 1,500,000 1,610,000
Yogi Enterprises 60,000 2,160,000 2,300,000
Totals P4,110,000 P4,335,000
During the year 2014, Santol sold 60,000 shares of Eloy Corporation for P1,600,000 and purchased 60,000 additional
shares of Kelly Inc. and 30,000 shares of Kongga company.
On December 31, 2014, Santol’s portfolio of non trading equity securities comprised the following:
Investee Company Shares Cost Fair Value
Kelly Inc. 30,000 P450,000 P500,000
Kelly Inc. 60,000 1,300,000 1,450,000
Kongga Company 30,000 520,000 480,000
Yogi Enterprises 60,000 2,160,000 700,000
Totals P4,430,000 P3,130,000
During the year 2015, Santol sold all the Kelly Inc. shares for P2,300,000 and 15,000 shares of Kongga Company at a loss
of P90,000. On December 31, 2015, Santol’s portfolio of non-trading equity securities consisted of the following:
Investee Company Shares Cost Fair Value
Yogi enterprises 60,000 2,160,000 4,200,000
Kongga Company 15,000 260,000 180,000
Totals P4,110,000 P4,380,000

1. What are the balances of the following accounts as of December 31, 2013?
Non Trading equity Securities:_____ Unrealized gain on Non trading equity securities:______
2. What are the balances of the following accounts as of December 31, 2014?
Non Trading equity Securities:_____ Unrealized gain on Non trading equity securities:______
3. What are the balances of the following accounts as of December 31, 2015?
Non Trading equity Securities:_____ Unrealized gain on Non trading equity securities:______
4. What is the realized gain or loss on sale of Eloy Corp. shares in 2014?
5. What is the net realized gain on the sale of securities in 2015?

PROBLEM 9
HARLINGTON COMPANY buys and sells securities expecting to earn profit on short term differences in prices. During
2014, Harlington Company purchased the following trading securities:
Security Cost FV (12/31/14)
A 585,000 675,000
B 900,000 486,000
C 1,980,000 2,034,000
Before any adjustments related to these trading securities, Harlington had net income of P2,700,000.
1. What is Harlington’s net income after making necessary adjustments?
2. What would Harlington’s net income be if the fair value of security B were P855,000?

PROBLEM 10
LABADA CO.’s portfolio of trading securities includes the following on December 31, 2013:
Cost Fair value
15,000 ordinary shares of Camias 1,431,000 1,251,000
30,000 ordinary shares of Ganda 1,638,000 1,710,000
3,069,000 2,961,000
All the above securities have been purchased in 2013. In 2014, Labada completed the ff. transactions:
 Mar. 1 - Sold 15,000 shares of Camias co. ordinary shares at P93, less brokerage commission of P13,500.
 April 1 - Bought 1,800 ordinary shares of Waston, Inc. at P135 plus commission taxes and other transaction costs of
P4,950.
The Labada Co. portfolio of trading securities appeared as follows on December 31, 2014:
Cost Fair value
 30,000 ordinary shares of Ganda 1,638,000 1,740,000*
1,800 ordinary shares of Waston 247,950 225,000**
1,885,950,000 1,965,000
*net of P19,500 estimated transaction costs that would be incurred on the sale of securities
**net of P4,500 transaction costs that would be incurred on the sale of securities

1. What amount of unrealized gain on these securities should be reported in 2014 income statement?
2. What is the gain on sale of CamiasCo. Ordinary shares on March 1, 2014?
3.What amount should be reported as trading securities in Labada’s statement of financial position on December 31,
2014?

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