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Inventories - Solution

The document contains 8 problems involving inventory valuation and accounting adjustments. Problem 1 lists includes and excludes. Problem 2 calculates total merchandise purchases. Problem 3 reconciles reported and correct inventory. Problem 4 adjusts reported inventory for ownership status. Problem 5 adjusts physical inventory for buyer/seller status. Problem 6 adjusts unadjusted inventory for various factors. Problem 7 adjusts reported profit for beginning/ending inventory and sales status discrepancies. Problem 8 demonstrates gross and net methods of accounting for purchases and payments.

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Kyla De Luna
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27 views2 pages

Inventories - Solution

The document contains 8 problems involving inventory valuation and accounting adjustments. Problem 1 lists includes and excludes. Problem 2 calculates total merchandise purchases. Problem 3 reconciles reported and correct inventory. Problem 4 adjusts reported inventory for ownership status. Problem 5 adjusts physical inventory for buyer/seller status. Problem 6 adjusts unadjusted inventory for various factors. Problem 7 adjusts reported profit for beginning/ending inventory and sales status discrepancies. Problem 8 demonstrates gross and net methods of accounting for purchases and payments.

Uploaded by

Kyla De Luna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Problem 1

a. Include
b. Include
c. Include
d. Exclude
e. Include
f. Exclude
g. Include
h. Include
i. Include
j. Include
k. Include
l. Include
m. Include
n. Exclude
o. Exclude
p. Exclude
q. Exclude
r. Exclude
s. Exclude
t. Exclude
u. Exclude
v. Include

Problem 2
Invoice price (150,000 x 80% x 90%) 108,000
Freight charge 2,500
Total cost of merchandise purchases 110,500

Problem 3
Reported units on April 30, 2020 10,200
Item 1 Purchase FOBSP 250
Item 2 Purchase FOBD -
Item 3 Sale FOBSP -
Item 4 Sale FOBD 500
Correct Inventory on April 30, 2020 10,950

Problem 4
Reported Inventory 9,500,000
I. 680,000 (properly included)
II. 420,000 (still owned by seller) (420,000)
III. 500,000 (we are the consignee) (500,000)
IV. 610,000 (we are the consignor) (200,000) (610,000 – 10,000 = SP 600,000 / 1.5 = 400,000 Cost)
(remove the mark-up) (600,000 – 400,000 = 200,000 mark-up)
a. 540,000 (properly not included)
b. 400,000 (should be included) 240,000 (SP 400,000 x 60% = Cost 240,000)
(remove the mark-up)
c. 150,000 (should be included) 150,000
d. 120,000 (properly not included)
Adjusted Inventory 8,770,000

Problem 5
Physical Inventory at December 31, 2020 172,000
I. 31,500 (we are the buyer, should be included) 31,500
II. 40,000 (we are the buyer, properly excluded)
III. 12,500 (we are the seller, should be included) 12,500
IV. 28,500 (we are the seller, properly excluded)
Adjusted Inventory at December 31, 2020 216,000
Problem 6
Unadjusted Inventory 562,500
a. 110,000 (goods out on consignment) 110,000
b. 27,000 (goods purchased in transit) 27,000
c. 85,000 (goods sold, inventory should be excluded) (85,000)
d. 26,000 (goods sold FOBD, not included) 26,000
e. 35,000 (goods purchased, properly excluded)
f. 65,000 (we are the consignee)
g. 37,000 (goods sold FOBD, not included) 37,000
Adjusted Inventory 677,500

Problem 7
Profit Reported for 2020 658,000
I. Beginning Inventory Overstated 71,000 BI over, COS over, Profit under
II. Ending Inventory Understated 96,000 EI under, COS over, Profit under
III. 60% sold while 40% still unsold (3,200) (60,000 – 52,000 = 8,000 x 40% = 3,200)
60% FOBSP, 40% FOBD (40% of the profit is not yet earned)
IV. Purchases Overstated in 2020 100,000 P over, COS over, Profit under
Adjusted Profit for 2020 921,800

Problem 8

Cases/Transactions Gross Method Net Method

a. December 15, 2020 Purchases 100,000 Purchases 95,000


Purchase on account Accounts Payable 100,000 Accounts Payable 95,000

b. December 22, 2020 Accounts Payable 100,000 Accounts Payable 95,000


Payment for purchases Cash 95,000 Cash 95,000
Purchase Discount 5,000

c. December 28, 2020 Accounts Payable 100,000 Accounts Payable 95,000


Payment for purchases Cash 100,000Purchase Discount Loss 5,000
Cash 100,000

d. December 31, 2020 No Entry Purchase Discount Loss 5,000


No payment made for Accounts Payable 5,000
purchases on account

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