Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
AUDITING PRACTICE
AP.3501-Audit of Inventories
INTERNAL CONTROL MEASURES
1. Authority and responsibility for controlling the
inventories should be centralized management and in
one person.
2. There should be careful selection of inventory
personnel and intensive training of such personnel in
policies, objectives and system of inventory control.
3. Adequate physical facilities for handling and storage of
inventory should be provided.
4. Adequate system of procedures, forms and reports
related to the management of inventories should be
developed and implemented.
5. Quantitative controls through perpetual inventory
records; book quantities verified with physical counts
at least once a year and differences being investigated,
promptly adjusted and reported to higher authority
should be implemented.
SUBSTANTIVE AUDIT OF INVENTORIES
Inventory Balances
Existence: Recorded inventory exist
1. Before the client takes the physical inventory, review
and approve the client’s written plan for taking it.
2. Observe the client personnel physically counting
inventory.
3. Confirm inventories on consignment and held in public
warehouses.
Completeness: All inventory of the entity recorded
4. Obtain a copy of prenumbered inventory tags used by
the client in taking inventory and reconcile the tags to
the listing.
5. For selected items, trace from tags to listing.
6. Perform cutoff procedures. Obtain the receiving report
number for the last shipment received prior to year-
end and determine that the item is included in
inventory. Also, identify the last shipping document
and determine, based on shipping terms, whether the
item was properly recorded in sales or inventory.
7. Perform analytical procedures.
Rights and obligations: Inventory is owned by the entity
8. Determine that consigned inventory has been excluded
from inventory and that inventory pledged has been
properly disclosed. Examine confirmations from
financial institutions and read minutes of the board of
directors’ meetings.
Valuation and allocation: Recorded inventory is valued in
accordance with GAAP
9. Considering the method the client uses for inventory
valuation, examine invoices for inventory on hand or
trace prior year’s inventory listing to verify cost.
10. For selected items, determine net realizable value
(NRV) of the inventory and apply the lower of cost or
NRV.
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OCAMPO/OCAMPO
OCTOBER 2023
6. Deliveries of materials, finished stock and merchandise
should be made only upon specific authorizations
emanating at authorized levels.
7. Slow-moving, obsolete and damaged stock should be
identified and reported following periodic reviews of
physical and book records by qualified employees.
Valuation on the basis of approved cost-mark-down
methods should be reviewed.
8. Safeguards against that action of the element and
inaccuracies in recording receipts and issues should be
adopted. Example – Maintaining adequate insurance
coverage.
11. Verify computations in the inventory listing.
12. Review the obsolescence of the inventory by:
a. being alert while observing inventory being taken
for damaged, slow-moving, or scrap inventory.
b. Scanning perpetual records for slow-moving items
and discussing their valuation with client.
Presentation and disclosure: Inventory is classified and
disclosed in accordance with GAAP
13. Determine whether accounts are classified and
disclosed in the financial statements in accordance
with GAAP.
Purchases
Completeness: Purchases that occurred are recorded
Trace a sequence of receiving reports to entries in the
voucher register. Test cutoff. Account for a sequence of
entries in the voucher register.
Occurrence: Recorded purchases are for items that were
acquired
Examine underlying documents for authenticity and
reasonableness. Scan voucher register for large or
unusual items. Trace inventory purchased to perpetual
records. Scan voucher register for duplicate payments.
Classification: Purchase transactions have been recorded in
the proper accounts
For a sample of entries in the purchases journal, verify the
accuracy of account coding.
Accuracy (Valuation): Purchases are recorded at proper
amounts
Recompute invoices and compare invoice price to purchase
order.
AP.701
TEAM PRTC

Production

Completeness: All production transactions that occurred Classification: Production transactions have been recorded
are recorded in the proper accounts
Account for a sequence for production reports. For a sample of entries, verify the accuracy of account
coding.
Occurrence: Recorded production transactions occurred
Accuracy (Valuation): Production transactions are
For selected transactions, examine signed materials
recorded at proper amounts
requisitions, approved labor tickets, and allocation of
overhead. Test cost records by tracing to underlying documents, such
as bill of materials, labor tickets, authorized labor rates,
and standard overhead rates. Review variances.

- end -

PROBLEM NO. 1
b) On the evening of Dec. 31, there were two trucks in
You were engaged by Quezon Corporation for the audit the company siding:
of the company’s financial statements for the current year • Truck No. CPA 123 was unloaded on January 2 of
ended. The company is engaged in the wholesale business the following year and received on Receiving
and makes all sales at 25% over cost. Report No. 1063. The freight was paid by the
vendor.
The following were gathered from the client’s accounting • Truck No. ILU 143 was loaded and sealed on
records: December 31 but leave the company premises on
January 2. This order was sold for P100,000 per
SALES PURCHASES
Sales Invoice No. 968.
Date Ref. Amount Date Ref. Amount
Balance Balance c) Temporarily stranded at Dec. 31 at the railroad siding
forwarded P5,200,000 forwarded P2,700,000 were two delivery trucks en route to Brooks Trading
Dec. SI No. Dec. RR No. Corporation. Brooks received the goods, which were
27 965 40,000 27 1057 35,000 sold on Sales Invoice No. 966 terms FOB Destination,
Dec. SI No. Dec. RR No. the next day.
28 966 150,000 28 1058 65,000
Dec. SI No. Dec. RR No. d) En route to the client on Dec. 31 was a truckload of
28 967 10,000 29 1059 24,000 goods, which was received on Receiving Report No.
Dec. SI No. Dec. RR No. 1064. The goods were shipped FOB Destination, and
31 969 46,000 30 1061 70,000 freight of P2,000 was paid by the client. However, the
Dec. SI No. Dec. RR No. freight was deducted from the purchase price of
31 970 68,000 31 1062 42,000 P800,000.
Dec. SI No. Dec. RR No.
31 971 16,000 31 1063 64,000 QUESTIONS:
Dec. Closing Dec. Closing
31 entry (5,530,000) 31 entry (3,000,000) 1. When inventory is material to the financial statements,
P - P - the auditor shall obtain sufficient appropriate audit
evidence regarding the existence and condition of
Note: SI = Sales Invoice RR = Receiving Report
inventory by:
a. Attendance at physical inventory counting, unless
Inventory P600,000 impracticable.
Accounts receivable 500,000 b. Performing audit procedures over the entity’s final
Accounts payable 400,000 inventory records to determine whether they
accurately reflect actual inventory count results.
You observed the physical inventory of goods in the c. Both a and b.
warehouse on Dec. 31 and were satisfied that it was d. Neither a nor b.
properly taken.
2. Attendance at physical inventory counting involves:
When performing sales and purchases cut-off tests, you a. Inspecting the inventory to ascertain its existence
found that at Dec. 31, the last Receiving Report which had and evaluate its condition, and performing test
been used was No. 1063 and that no shipments had been counts.
made on any Sales Invoices whose number is larger than b. Observing compliance with management’s
No. 968. You also obtained the following additional instructions and the performance of procedures for
information: recording and controlling the results of the physical
inventory count.
a) Included in the warehouse physical inventory at
c. Obtaining audit evidence as to the reliability of
December 31 were goods which had been purchased
management’s count procedures.
and received on Receiving Report No. 1060 but for
d. All of these.
which the invoice was not received until the following
year. Cost was P18,000.
3. The procedures involve in the attendance at physical
inventory counting
a. Serve as risk assessment procedures.
b. Serve as test of controls.
c. Serve as substantive procedures.

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d. May serve as test of controls or substantive 10. An auditor selected items for test counts while
procedures depending on the auditor’s risk observing a client’s physical inventory. The auditor
assessment, planned approach and the specific then traced the test counts to the client’s inventory
procedures carried out. listing. This procedure most likely obtained evidence
concerning
4. In which of the following cases is attendance at a. Existence. c. Rights.
physical inventory counting impracticable? b. Completeness. d. Valuation.
a. Where inventory is held in a location that may
pose threats to the safety of the auditor. Based on the given information and the result of your
b. Where the auditor will be inconvenienced because audit, determine the adjusted amount for the following:
of the difficulty, time and cost involved in doing
11. Sales
the procedures.
a. P5,150,000 c. P5,350,000
c. Both a and b.
b. P5,250,000 d. P5,400,000
d. Neither a nor b.
12. Purchases
5. If attendance at physical inventory counting is a. P3,000,000 c. P3,754,000
impracticable, the auditor shall b. P3,018,000 d. P3,818,000
a. Perform alternative audit procedures to obtain
sufficient appropriate audit evidence regarding the 13. Inventory
existence and condition of inventory. a. P800,000 c. P864,000
b. Modify the opinion in the auditor’s report. b. P814,000 d. P968,000
c. Make or observe some physical counts on an 14. Accounts receivable
alternative date, and perform audit procedures on a. P120,000 c. P350,000
intervening transactions. b. P220,000 d. P370,000
d. Do nothing and just rely on the result of physical
inventory counting conducted by the client. 15. Accounts payable
a. P354,000 c. P 418,000
6. Which of the following may provide sufficient b. P400,000 d. P1,218,000
appropriate audit evidence about the existence and
condition of inventory if attendance at physical
inventory counting is impracticable? PROBLEM NO. 2
a. Inspection of documentation of the subsequent During your audit of the Makati Corporation for the current
sale of specific inventory items purchased prior to year ended, you found the following information relating to
the physical inventory counting. certain inventory transactions from your observation of the
b. Inspection of documentation of the subsequent client’s physical count and review of sales and purchases
sale of specific inventory items purchased after the cutoff:
physical inventory counting.
c. Both a and b. a. Goods costing P180,000 were received from a vendor
d. Neither a nor b. on Jan. 3. The goods were not included in the physical
count. The related invoice was received and recorded
7. When inventory under the custody and control of a on Dec. 30. The goods were shipped on Dec. 31, terms
third party is material to the financial statements, the FOB shipping point.
auditor shall obtain sufficient appropriate audit
b. Goods costing P200,000, sold for P300,000, were
evidence regarding the existence and condition of that
shipped on Dec. 31, and were received by the
inventory by
customer on Jan. 2. The terms of the invoice were FOB
a. Requesting confirmation from the third party as to
shipping point. The goods were included in the ending
the quantities and condition of inventory held on
inventory for the current year and the sale was
behalf of the entity.
recorded in the subsequent year.
b. Performing inspection or other audit procedures
appropriate in the circumstances. c. The invoice for goods costing P150,000 was received
c. Performing one or both of the procedures in (a) and recorded as a purchase on Dec. 31. The related
and (b). goods, shipped FOB destination were received on Jan.
d. Relying only on the written representations made 2, but were included in the physical inventory as goods
by the client’s management. in transit.
d. A P600,000 shipment of goods to a customer on Dec.
8. Which of the following is not one of the independent
30, terms FOB destination, was recorded as a sale
auditor's objectives regarding the audit of inventories?
upon shipment. The goods, costing P400,000 and
a. Verifying that inventory counted is owned by the
delivered to the customer on Jan. 6, were not included
client.
in the current year ending inventory.
b. Verifying that the client has used proper inventory
pricing. e. Goods valued at P250,000 are on consignment from a
c. Ascertaining the physical quantities of inventory on vendor. These goods are included in the physical
hand. inventory.
d. Verifying that all inventory owned by the client is
on hand at the time of the count. f. Goods valued at P160,000 are on consignment with a
customer. These goods are not included in the physical
9. An auditor is most likely to inspect loan agreements inventory.
under which an entity’s inventories are pledged to
support management’s financial statement assertion of QUESTIONS:
a. Existence or occurrence. Based on the given information and the result of your
b. Completeness. audit, answer the following:
c. Presentation and disclosure.
d. Valuation or allocation.

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1. The inventory as of Dec. 31 is understated by SOLUTION GUIDE (Question No. 1 to 4)

a. P140,000 c. P230,000
b. P190,000 d. P290,000 Over (Under)
Inventory COS Profit WC
2. The cost of sales for the current year ended is a
overstated by b
a. P110,000 c. P380,000 c
b. P290,000 d. P440,000 d
3. The profit for the current year ended is misstated by e
a. P 10,000 over c. P190,000 over f
b. P140,000 under d. P290,000 under
4. The working capital as of Dec. 31 is misstated by
a. P 10,000 over c. P190,000 over PROBLEM NO. 3
b. P140,000 under d. P290,000 under
Your client, Mandaluyong Company, is an importer and
5. Purchase cut-off procedures should be designed to test wholesaler. Its merchandise is purchased from several
whether all inventory suppliers and is warehoused until sold to customers.
a. Owned by the company is in the possession of the
company at year-end. In conducting your audit for the current year ended, you
b. Ordered before year-end was received. were satisfied that the system of internal control was
c. Purchased and received before year-end was paid good. Accordingly, you observed the physical inventory at
for. an interim date, Nov. 30, instead of at year end. You
d. Purchased and received before year-end was obtained the following information from your client’s
recorded. general ledger:
6. The audit of year-end inventories should include steps Inventory, Jan. 1 P 1,312,500
to verify that the client’s purchases and sales cutoffs Physical inventory, Nov. 30 1,425,000
were adequate. These audit steps should be designed Sales for 11 months ended Nov. 30 12,600,000
to detect whether merchandise included in the physical Sales for the year ended Dec. 31 14,400,000
count at year-end was not recorded as a Purchases for 11 months ended Nov. 30
a. Sale in the subsequent period (before audit adjustments) 10,125,000
b. Purchase in the current period Purchases for the year ended Dec. 31
c. Sale in the current period (before audit adjustments) 12,000,000
d. Purchase in the subsequent period
Your audit disclosed the following information:
7. An auditor usually examines receiving reports to
support entries in the a) Shipments received in Nov. and
a. Voucher register and sales returns journal. included in the physical inventory but
b. Sales journal and sales returns journal. recorded as Dec. purchases. P 112,500
c. Voucher register and sales journal. b) Shipments received in unsalable
d. Check register and sales journal. condition and excluded from physical
inventory. Credit memos had not
8. The authority to accept incoming goods in receiving been received nor chargebacks to
should be based on a (an) vendors been recorded:
a. Vendor’s invoice. Total at Nov. 30 15,000
b. Bill of lading. Total at Dec. 31
c. Materials requisition. (including the November
d. Approved purchase order. unrecorded chargebacks) 22,500
9. For effective internal control, the accounts payable c) Deposit made with vendor and charged
department generally should to purchases in Oct. Product was
a. Ascertain that each requisition is approved as to shipped in Jan. 30,000
price, quantity, and quality by an authorized d) Deposit made with vendor and charged
employee. to purchases in Nov. Product was
b. Stamp, perforate, or otherwise cancel supporting shipped FOB destination on Nov. 29
documentation after payment is mailed. and was included in Nov. 30 physical
c. Establish the agreement of the vendor’s invoice inventory as goods in transit. 82,500
with the receiving report and purchase order. e) Through the carelessness of the
d. Remove the quantity ordered on the receiving receiving department shipment in
department copy of the purchase order. early Dec. was damaged by rain. This
shipment was later sold in the last
10. A client's purchasing system ends with the assumption week of Dec. at cost. 150,000
of a liability and the eventual payment of the liability.
Which of the following best describes the auditor's QUESTIONS:
primary concern with respect to liabilities resulting
from the purchasing system? Based on the given information and the result of your
a. Commitments for all purchases are made only after audit, answer the following:
established competitive bidding procedures are
followed.
b. Accounts payable are not materially understated.
c. Authority to incur liabilities is restricted to one
designated person.
d. Acquisition of materials is not made from one
vendor or one group of vendors.

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1. Which statement is correct regarding physical Question No. 4

inventory counting conducted other than at the date of
Sales, up to 12/31 P14,400,000
the financial statements?
Less sales, up to 11/30 12,600,000
a. For practical reasons, the physical inventory
Sales - December 1,800,000
counting may be conducted at a date, or dates,
Sales without profit ( 150,000)
other than the date of the financial statements.
Sales with profit 1,650,000
b. This may be done irrespective of whether
x Cost ratio
management determines inventory quantities by
COS with profit
an annual physical inventory counting or maintains
COS without profit
a perpetual inventory system.
Total
c. The effectiveness of the design, implementation
and maintenance of controls over changes in
Question No. 5
inventory determines whether the conduct of
physical inventory counting at a date, or dates, Inventory, 1/1 P 1,312,500
other than the date of the financial statements is Net purchases, 12/31
appropriate for audit purposes. TGAS
d. All of these. Less cost of sales:
With profit
2. A client maintains perpetual inventory records in both
[(14.4M -.15M)x.8]
quantities and pesos. If the assessed level of control
Without profit
risk is high an auditor will probably
Estimated inventory, 12/31
a. Request the client to schedule the physical
inventory count at the end of the year.
b. Apply gross profit tests to ascertain the
PROBLEM NO. 4
reasonableness of the physical counts.
c. Increase the extent of tests of controls relevant to On April 21 of the current year, a fire damaged the office
the inventory cycle. and warehouse of Muntinlupa Company. The only
d. Insist that the client perform physical counts of accounting record saved was the general ledger, from
inventory items several times during the year. which the trial balance below was prepared.
3. Gross profit rate for 11 months ended Nov. 30 is Muntinlupa Company
a. 19% c. 21% Trial Balance
b. 20% d. 22% March 31
4. Cost of goods sold during the month of Dec. using the DEBIT CREDIT
gross profit method is Cash P 180,000
a. P1,290,000 c. P1,440,000
Accounts receivable 400,000
b. P1,320,000 d. P1,470,000
Inventory, Jan. 1 750,000
5. Estimated inventory at Dec. 31 is
Land 350,000
a. P1,710,000 c. P1,740,000
b. P1,725,000 d. P1,860,000 Building 1,100,000
Acc. depreciation P 413,000
SOLUTION GUIDE:
Other assets 56,000
Question No. 3 Accounts payable 237,000
Sales, up to 11/30 P12,600,000 Accrued expenses 180,000
Less COS, up to 11/30: Share capital, P100 par 1,000,000
Inventory, 1/1 P 1,312,500
Retained earnings 520,000
Net purchases, 11/30
TGAS Sales 1,350,000
Inventory, 11/30 Purchases 520,000
Gross profit
Operating expenses 344,000 .
Computation of adjusted amounts: Totals P3,700,000 P3,700,000

Inventory, N.P.,11/30 N.P.,12/31 The following data and information have been gathered:
11/30 (11 mos.) (12 mos.) a. The company’s year-end is Dec. 31.
Unadjusted 1,425,000 10,125,000 12,000,000 b. An examination of the April bank statement and
cancelled checks revealed that checks written during
a
the period April 1 to 21 totaled P130,000: P57,000
b paid to accounts payable as of March 31, P34,000 for
April merchandise purchases, and P39,000 paid for
c other expenses. Deposits during the same period
amounted to P129,500, which consisted of receipts on
d
account from customers with the exception of a P9,500
e refund from a vendor for merchandise returned in
April.
Adjusted
c. Correspondence with suppliers revealed unpaid
obligations at April 21 of P106,000 for April
merchandise purchases, including P23,000 for
shipments in transit on that date.

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d. Customers acknowledged indebtedness of P360,000 at 10. Which of the following controls most likely addresses
April 21. It was also estimated that customers owed the completeness assertion for inventory?
another P80,000 that will never be acknowledged or a. Receiving reports are prenumbered and
recovered. Of the acknowledged indebtedness, P6,000 periodically reconciled.
will probably be uncollectible. b. Work in process account is periodically reconciled
with subsidiary records.
e. The insurance company agreed that the fire loss claim
c. Employees responsible for custody of finished
should be based on the assumption that the overall
goods do not perform the receiving function.
gross profit ratio for the past two years was in effect
d. There is a separation of duties between payroll
during the current year. The company’s audited
department and inventory accounting personnel.
financial statements disclosed the following
information:
Prior year Two-year prior
PROBLEM NO. 5
Net sales P5,300,000 P3,900,000
Net purchases 2,800,000 2,350,000 You are engaged in the regular annual examination of the
Beginning inventory 500,000 660,000 accounts and records of Valenzuela Manufacturing Co.
Ending inventory 750,000 500,000 for the current year ended. To reduce the workload at year
end, the company, upon your recommendation, took its
f. Inventory with a cost of P70,000 was salvaged and
annual physical inventory on Nov. 30. You observed the
sold for P35,000. The balance of the inventory was a
taking of the inventory and made tests of the inventory
total loss.
count and the inventory records.
QUESTIONS:
The company’s inventory account, which includes raw
Based on given information and the result of your audit, materials and work-in-process is on perpetual basis.
answer the following: Inventories are valued at cost, first-in, first-out method.
1. How much is the adjusted balance of Accounts Payable There is no finished goods inventory.
as of Apr. 21?
The company’s physical inventory revealed that the book
a. P106,000 c. P286,000
inventory of P1,695,960 was understated by P84,000. To
b. P237,000 d. P343,000
avoid delay in completing its monthly financial statements,
2. How much is the net purchases for the period Jan. 1 to the company decided not to adjust the book inventory until
Apr. 21? year-end except for obsolete inventory items.
a. P650,500 c. P673,500
b. P660,000 d. P683,000 Your examination disclosed the following information
regarding the November 30 inventory:
3. How much is the adjusted balance of Accounts a. Pricing tests showed that the physical inventory was
Receivable as of Apr. 21? overstated by P61,600.
a. P354,000 c. P400,000
b. P360,000 d. P440,000 b. An understatement of the physical inventory by P4,200
due to errors in footings and extensions.
4. How much is the sales for the period Jan. 1 to Apr. 21?
c. Direct labor included in the inventory amounted to
a. P1,430,000 c. P1,510,000
P280,000. Overhead was included at the rate of 200%
b. P1,506,000 d. P1,519,500
of direct labor. You have ascertained that the amount
5. How much is the cost of sales for the period Jan. 1 to of direct labor was correct and that the overhead rate
Apr. 21? was proper.
a. P786,500 c. P830,500 d. The physical inventory included obsolete materials with
b. P828,300 d. P835,725 a total cost of P7,000. During December, the obsolete
6. How much is the estimated inventory on Apr. 21? materials were written off by a charge to cost of sales.
a. P570,000 c. P587,775
b. P579,500 d. P623,500 Your audit also disclosed the following information about
the Dec. 31 inventory:
7. How much is the estimated inventory fire loss? a. Total debits to the following accounts during December
a. P477,000 c. P535,000 were:
b. P512,000 d. P579,500 Cost of sales P1,920,800
8. To determine whether accounts payable are complete, Direct labor 338,800
an auditor performs a test to verify that all Purchases 691,600
merchandise received is recorded. The population of b. The cost of sales of P1,920,800 included direct labor of
documents for this test consists of all P386,400.
a. Payment vouchers.
b. Purchase requisitions. QUESTIONS:
c. Receiving reports.
Based on the above and the result of your audit, answer
d. Vendor’s invoices.
the following:
9. What is the reason for ensuring that every copy of a
1. Adjusted amount of physical inventory at Nov. 30
vendor’s invoice has a receiving report?
a. P1,631,560 c. P1,722,560
a. To ascertain that merchandise received by the
b. P1,715,560 d. P1,845,760
company was billed by the vendor.
b. To ascertain that the invoice was correctly 2. Adjusted amount of inventory at Dec. 31
prepared. a. P1,425,760 c. P1,509,760
c. To ascertain that a check was prepared for every b. P1,502,760 d. P1,516,760
invoice.
d. To ascertain that merchandise billed by the vendor
was received by the company.

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3. Cost of materials on hand, and materials included in 8. What form of analytical review might uncover the
work in process as of Nov. 30 existence of obsolete merchandise?
a. P791,560 c. P 882,560 a. Inventory turnover rates.
b. P875,560 d. P1,005,760 b. Decrease in the ratio of gross profit to sales.
c. Ratio of inventory to accounts payable.
4. Cost of materials on hand, and materials included in
d. Comparison of inventory values to purchase
work in process as of Dec. 31
invoices.
a. P728,560 c. P819,560
b. P812,560 d. P942,760
9. An auditor is most likely to learn of slow-moving
5. The amount of direct labor included in work in process inventory through
as of Dec. 31 a. Inquiry of sales personnel
a. P232,400 c. P386,400 b. Inquiry of warehouse personnel
b. P338,800 d. P618,800 c. Physical observation of inventory
d. Review of perpetual inventory records.
6. Which of the following auditing procedures most likely
would provide assurance about a manufacturing 10. The auditor tests the quantity of materials charged to
entity’s inventory valuation? work in process by tracing these quantities to
a. Tracing test counts to the entity’s inventory listing. a. Cost ledgers.
b. Obtaining confirmation of inventories pledged b. Perpetual inventory records.
under loan agreements. c. Receiving reports.
c. Reviewing shipping and receiving cutoff procedures d. Material requisitions.
for inventories.
d. Testing the entity’s computation of standard
overhead rates. SOLUTION GUIDE (Question No. 3 and 4)

7. The physical count of inventory of a retailer was higher Inventory,11/30

than shown by the perpetual records. Which of the Direct labor, 11/30 ( 280,000)
following could explain the difference? Factory overhead, 11/30
a. Inventory item has been counted but the tags Materials, 11/30
placed on the items had not been taken off the Purchases - December 691,600
items and added to the inventory accumulation Total
sheets. Less materials in COS:
b. An item purchased “FOB shipping point” had not Adj. COS – Dec.
arrived at the date of the inventory count and had Direct labor ( 386,400)
not been reflected in the perpetual records. Factory overhead
c. No journal entry had been made on the retailer’s Materials on hand and
books for several items returned to its suppliers. included in WIP
d. Credit memos for several items returned by
customers had not been recorded. J - end of AP.3501 - J

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