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    (02C) Inventories Assignment ANSWER KEY

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    Gabriel Adrian Obungen
    The document provides an answer key for an intermediate accounting assignment on inventories. It includes missing amounts, calculations of inventory costs, and analyses of inventory valuation. Key points include determining the total cost of purchases by applying a trade discount to the list price and adding freight charges. The correct amount of inventory is calculated by adjusting the reported ending inventory for items that should be included or excluded based on ownership considerations.

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    (02C) Inventories Assignment ANSWER KEY

    Uploaded by

    Gabriel Adrian Obungen
    110 views7 pages
    The document provides an answer key for an intermediate accounting assignment on inventories. It includes missing amounts, calculations of inventory costs, and analyses of inventory valuation. Key points include determining the total cost of purchases by applying a trade discount to the list price and adding freight charges. The correct amount of inventory is calculated by adjusting the reported ending inventory for items that should be included or excluded based on ownership considerations.

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    The document provides an answer key for an intermediate accounting assignment on inventories. It includes missing amounts, calculations of inventory costs, and analyses of inventory valuation. Key points include determining the total cost of purchases by applying a trade discount to the list price and adding freight charges. The correct amount of inventory is calculated by adjusting the reported ending inventory for items that should be included or excluded based on ownership considerations.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    110 views7 pages

    (02C) Inventories Assignment ANSWER KEY

    Uploaded by

    Gabriel Adrian Obungen
    The document provides an answer key for an intermediate accounting assignment on inventories. It includes missing amounts, calculations of inventory costs, and analyses of inventory valuation. Key points include determining the total cost of purchases by applying a trade discount to the list price and adding freight charges. The correct amount of inventory is calculated by adjusting the reported ending inventory for items that should be included or excluded based on ownership considerations.

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    © All Rights Reserved
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    of 7

    ADAMSON UNIVERSITY

    INTERMEDIATE ACCOUNTING 1
    INVENTORIES – ASSIGNMENT ANSWER KEY
    A. Supply the missing amounts.
    A B C D E
    Purchase Returns & Allowances (1) 2,480 1,750 14,000 2,200
    Sales Returns & Allowances 4,500 6,200 2,250 35,000 5,500
    Goods Available for Sale 69,000 77,500 90,000 (7) 85,500
    Freight In 2,000 5,000 (5) 1,250 1,110
    Freight Out 3,000 12,000 5,000 3,800 1,500
    Merchandise Inventory, beginning 35,000 19,000 17,500 13,000 (9)
    Merchandise Inventory, ending 19,000 (3) (6) 18,500 (10)
    Purchases 47,500 (4) 72,000 85,000 73,000
    Sales Discount 3,200 4,600 5,500 1,950 2,000
    Purchase Discount 2,750 2,175 0 (8) 1,500
    Cost of Goods Sold (2) 54,000 43,000 60,000 68,000

    HINT: Recall the formula of Cost of Goods Sold, then work-back


    A B C D E
    Merchandise Inventory, beginning 35,000 19,000 17,500 13,000 (9)

    Add: Net Purchases


    Purchases 47,500 (4) 72,000 85,000 73,000
    Add: Freight In 2,000 5,000 (5) 1,250 1,110
    Less: Purchase Discount 2,750 2,175 0 (8) 1,500
    Less: Purchase Returns &
    Allowances (1) 2,480 1,750 14,000 2,200
    ---------- ---------- ---------- ---------- ----------
    ? ? ? ? ?
    ---------- ---------- ---------- ---------- ----------
    Goods Available for Sale 69,000 77,500 90,000 (7) 85,500
    Merchandise Inventory, ending 19,000 (3) (6) 18,500 (10)
    ---------- ---------- ---------- ---------- ----------
    Cost of Goods Sold (2) 54,000 43,000 60,000 68,000
    ===== ===== ===== ===== =====

    A B C D E
    Merchandise Inventory, beginning 35,000 19,000 17,500 13,000 15,090

    Add: Net Purchases


    Purchases 47,500 58,155 72,000 85,000 73,000
    Add: Freight In 2,000 5,000 2,250 1,250 1,110
    Less: Purchase Discount 2,750 2,175 0 6,750 1,500
    Less: Purchase Returns &
    Allowances 12,750 2,480 1,750 14,000 2,200
    ---------- ---------- ---------- ---------- ----------
    34,000 58,500 72,500 65,500 70,410
    ---------- ---------- ---------- ---------- ----------
    Goods Available for Sale 69,000 77,500 90,000 78,500 85,500
    Merchandise Inventory, ending 19,000 23,500 47,000 18,500 17,500
    ---------- ---------- ---------- ---------- ----------
    Cost of Goods Sold 50,000 54,000 43,000 60,000 68,000
    ===== ===== ===== ===== =====
    B. Crossings Company regularly buys merchandise from Best Company and is allowed a
    trade discount of 20% from the list price. Crossings made a purchase on March 20, 2020,
    and received an invoice with a list price of P150,000, a freight charge of P2,500, and
    payment terms of net 30 days.
    What is the total cost of merchandise purchases?
    Initially, compute for the invoice price
    List Price 150,000
    Less: Trade Discount (P150,000 X 20%) 30,000
    ------------
    Invoice Price 120,000

    Then, add all other charges that are considered as part of the inventory

    Invoice Price 120,000


    Add: Freight Charge 2.500
    ------------
    Total cost of merchandise purchases 122,500

    Or

    Invoice Price (P150,000 X 80%) 120,000


    Add: Freight Charge 2.500
    ------------
    Total cost of merchandise purchases 122,500

    C. The inventory of Orient Trading at the end of 2020 is P9,500,000. Included in the
    amount are the following items:
     Merchandise in transit, purchased FOB Shipping Point, P680,000.
     Goods held on consignment, P500,000.
     Goods out on consignment, at cost plus 50% mark-up on cost plus P10,000
    delivery charge, P610,000.
    What is the correct amount of inventory?
    Analyze the effect, if any, of the items included in the reported inventory of
    P9,500,000

    Merchandise in transit, purchased FOB Shipping Point, P680,000 >>> Due to the
    shipment terms, ownership of the merchandise is already passed on to Orient.
    Hence, it is just proper for Orient to include it at part of Inventory.

    Goods held on consignment, P500,000 >>> Orient may have the goods in its custody
    but Orient DOES NOT OWN the goods. Hence, Orient SHOULD DEDUCT this
    amount from the reported inventory amount.

    Goods out on consignment, at cost plus 50% mark-up on cost plus P10,000 delivery
    charge, P610,000 >>> Orient may not have the goods in its custody but Orient
    STILL OWNS the goods. Even though it is PROPER for Orient to include the
    delivery charges of goods out on consignment, it is NOT PROPER for Orient to
    include the 50% mark-up as part of the cost of goods out on consignment.

    Determine the Selling Price of the goods out on consignment


    Amount of goods out on consignment 610,000
    Less: Delivery Charge (10,000)
    ------------
    Selling Price 600,000

    If the Selling Price is P600,000 and it includes a 50% mark-up, then the cost of the
    goods must be P400,000 (P600,000 DIVIDED BY 150%). Therefore, the mark-up is
    determined to be P200,000 (P600,000 – 400,000)

    The correct Inventory amount is computed as follows:


    Reported Inventory 9,500,000
    Less: Goods held on consignment (500,000)
    Less: Mark-up on goods out on consignment (200,000)
    ---------------
    Correct amount of Inventory 8,800,000
    D. The physical inventory on December 31, 2020 of Tintin Company showed
    merchandise at P172,000. You discovered that the following items were excluded from
    this amount:
     Merchandise costing P31,500 shipped by a vendor FOB Shipping Point on
    December 31, 2020 and received by Tintin on January 5, 2021.
     Merchandise costing P40,000 shipped by a vendor FOB Destination on December
    30,2020 and received by Tintin on January 4, 2021.
     Merchandise costing P12,500 which was shipped FOB Destination to a customer
    on December 29, 2020. The customer expected to receive the merchandise on
    January 6, 2021.
     Merchandise costing P28,500 which was shipped FOB Shipping Point to a
    customer on December 29, 2020. The goods are scheduled to arrive at the
    destination point on January 2, 2021.
    What is the correct amount of inventory?
    Analyze the effect, if any, of the items included in the reported inventory of
    P172,000

    Merchandise costing P31,500 shipped by a vendor FOB Shipping Point on


    December 31, 2020 and received by Tintin on January 5, 2021 >>> Tintin is the
    BUYER in this transaction. Due to its shipment terms, Tintin already OWNS the
    merchandise. Hence, Tintin SHOULD INCLUDE it as part of Inventory regardless
    of when Tintin received the goods.

    Merchandise costing P40,000 shipped by a vendor FOB Destination on December


    30,2020 and received by Tintin on January 4, 2021 >>> Tntin is the BUYER in this
    transaction. Due to its shipment terms, it is PROPER for Tintin to EXCLUDE this
    amount because Tintin received the goods in the following year.

    Merchandise costing P12,500 which was shipped FOB Destination to a customer on


    December 29, 2020. The customer expected to receive the merchandise on January
    6, 2021 >>> Tintin is the SELLER in this transaction. Due to its shipment terms,
    Tintin STILL OWNS the goods regardless of the date the customer (buyer) actually
    received the goods. Hence, Tintin SHOULD INCLUDE the amount in the
    Inventory.

    Merchandise costing P28,500 which was shipped FOB Shipping Point to a customer
    on December 29, 2020. The goods are scheduled to arrive at the destination point on
    January 2, 2021 >>> Tintin is the SELLER in this transaction. Due to its shipment
    terms, the customer (buyer) already owns the goods regardless of the date the
    customer (buyer) actually received the goods. Hence, it is PROPER for Tintin to
    EXCLUDE the amount from the Inventory.

    Physical inventory at December 31, 2020 172,000


    Add: Merchandise bought shipped FOB Shipping Point 31,500
    Add: Merchandise sold shipped FOB Destination 12,500
    ---------------
    Correct inventory at December 31, 2020 216,000

    E. Rock Distributors, a computer store, specializes in the sale of IBM compatibles and
    software packages, and had the following transactions with one of its suppliers:

    Purchases of IBM compatibles P3,280,000


    Purchases of commercial software package 900,000
    Returns and allowances 80,000
    Purchase discounts taken 27,000

    Purchases were made throughout the year on terms 3/10, n/30. All returns and
    allowances took place within 5 days of purchase and prior to any payment of account.

    How much were the discounts lost?

    Purchases of IBM compatibles 3,280,000


    Add: Purchases of commercial software package 900,000
    --------------------

    Total Purchases 4,180,000


    Less: Returns and allowances 80,000
    --------------------

    Purchases eligible for discount 4,100,000


    Estimated discount (P4,100,000 X 3%) 123,000
    Purchase discounts taken 27,000
    --------------------

    Discounts lost 96,000

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