2016 Vol 1 Ch 4 Answers

Chapter 4 - Inventories

CHAPTER 4 INVENTORIES PROBLEMS Discussion Question No. 15 (Hamster Company

Goods displayed in the store Goods stocked in the warehouse, not covered by any sales contract Goods purchased, in transit, shipped FOB seller Goods purchased, in transit, shipped FOB destination Freight cost on goods received, goods are still unsold Goods held on consignment Goods out on consignment Goods out to customers on approval Goods in the hands of traveling salesmen Goods sold with a buyback arrangement for the full selling price and other costs incurred by the buyer Unused factory supplies and indirect materials Goods which require additional processing Direct materials stocked in the warehouse Storage costs of goods completed Insurance premiums paid on stocked goods Goods completed, manufactured to customer’s specification, awaiting instruction for delivery by the customer Freight paid on goods sold Unused supplies for administrative purposes Unused store supplies Goods sold with a right to return granted to buyers, amount of return is reasonably predictable. Goods sold under FAS, at the port designated by the buyer Goods at the port, purchased CIF

Include Exclude √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √

PROBLEMS 4-1.

(Crossings Company) Invoice price (150,000 x 0.80 x 0.90) Freight charge Total cost of merchandise purchases

4-2.

P 108,000 2,500 P 110,500

(Jane, Inc.) Reported units on April 30, 2016 Adjustments: No. 1 item – Purchased FOB shipping point still in transit not included in purchases No. 3 item – Sold FOB destination still in transit not included in inventory Correct inventory quantity

31

10,200

250 500 10,950

Chapter 4 - Inventories

4-3.

(Orient Trading) Reported inventory Merchandise in transit purchased FOB destination Goods held on consignment Mark up on goods out on consignment Sales price 600,000 Cost (600,000÷ 1.5) 400,000 Merchandise in transit to customers FOB destination 400,000 x (100% - 40%) Merchandise purchased in transit FAS Correct inventory

4-4.

240,000 150,000 P8,770,000

P 172,000 31,500 12,500 P 216,000

(Centerpoint, Inc.) Reported inventory Adjustments: a. Goods out on consignment b. Goods purchased in transit FOB shipping point c. Goods sold in transit FOB shipping point included in inventory d. Goods sold in transit FOB destination e. not included in inventory g. Goods sold in transit FOB destination not included in inventory Correct inventory

4-6.

(200,000)

(Tintin Company) Physical inventory at December 31, 2016 Merchandise in transit shipped FOB shipping point Merchandise sold FOB destination still in transit Correct inventory at December 31, 2016

4-5.

P9,500,000 (420,000) (500,000)

P 562,500 110,000 27,000 (

85,000) 26,000 37,000 P 677,500

(Mega Company) FIFO Weighted average Moving average FIFO

Cost of EI 3,506 3,333 3,370

Cost of ending inventory: 275 x 11.75 25 x 11.00 Cost of goods sold:

Cost of Goods Sold 4,550 4,723 4,686

3,231.25 275.00

32

Gross Profit 1,955 1,782 1,819

3,506.25

Chapter 4 - Inventories

Cost of goods available for sale Less ending inventory Gross profit: Sales Less cost of goods sold Weighted average Cost of ending inventory: Cost of goods available for sale Number of units available for sale Weighted average cost per unit Units in ending inventory Cost of goods sold: Cost of goods available for sale Less ending inventory Gross profit: Sales Less cost of goods sold Moving average Cost of ending inventory: Inventory, January 1 Purchase, March 7 Total Sale, May 20 Sale, June 30 Balance Purchase, July 15 Total Sale, September 17 Balance

(Landmark Enterprises) a.

4,550.00

6,505.00 4,550.00

1,955.00

8,056.25 ÷ 725 11.11 x 300

3,333.00

8,056.25 3,333.00

4,723.25

6,505.00 4,723.25

1,781.75

250 x 10.50 = 2,625.00 200 x 11.00 = 2,200.00 450 x 10.72 = 4,825.00 (120 x 10.72 = 1,286.40) ( 55 x 10.72 = 589.60) 275 x 10.72 = 2,949.00 275 x 11.75 = 3,231.25 550 x 11.24 = 6,180.25 (250 x 11.24 = 2,810.00) 300 x 11.24 =

Cost of goods sold: Cost of goods available for sale Less ending inventory Gross profit: Sales Less cost of goods sold 4-7.

8,056.25 3,506.25

Cost of ending inventory 1/1 2,400@ 10.75 25,800 1/5 1,900@ 11.35 21,565 4,300@ 11.02 47,365 1/8 2,200@ 11.02 24,244 2,100@ 11.01 23,121 1/24 3,800@ 11.80 44,840 5,900@ 11.52 67,961 1/30 3,600@ 11.52 41,472 2,300@ 11.52 26,489

33

3,370.25

8,056.25 3,370.25

4,686.00

6,505.00 4,686.00

1,819.00

Chapter 4 - Inventories

b.

4-8.

Cost of goods available for sale (25,800 + 21,565 + 44,840) Number of units available for sale (2,400 + 1,900 + 3,800) Weighted average cost per unit Number of units in ending inventory Cost of ending inventory

(Rockwell Club, Inc.) Cost of sales: Sales (160,500 x 12) 1,926,000 Less gross profit 738,600 Add ending inventory 42,000 x 7.40 310,800 3,000 x 7.20 21,600 Available for sale Deduct purchases Inventory, January 1 Average cost per unit (369,750 ÷ 51,000 units)

4-9.

P92,205 ÷ 8,100 P 11,38 x 2,300 P26,174

Amount

Units

P1,187,400

160,500

332,400 P1,519,800 1,150,050 P 369,750

45,000 205,500 154,500 51,000 P 7.25

(Mazda Corporation) (a)

FIFO Sales Cost of goods sold Gross profit Cost of goods sold: 2014 10,000 2015 3,000 13,000 2016 5,000 19,000

(b)

2014 P12,000,000 7,000,000 P 5,000,000 x 700 x 700 x 820 x 820 x 850

Weighted average Sales Cost of goods sold Gross profit

= = = = =

2015 P18,800,000 12,760,000 P 6,040,000

2016 P29,400,000 20,250,000 P 9,150,000

7,000,000 2,100,000 10,660,000 4,100,000 16,150,000 2014 P12,000,000 7,000,000 P 5,000,000

12,760,000 20,250,000 2015 P18,800,000 12,845,760 P 5,954,240,

2016 P29,400,000 20,211,360 P 9,188,640

Cost of goods sold: 2014 10,000 x 700 7,000,000 2015 (3,000 x 700) + (18,000 x 820) x 16,000* 12,845,760 21,000 2016 (5,000 x 802.86) + (25,000 x 850) x 24,000* 20,211,360 30,000 *unit costs were rounded off to nearest centavo: 802.86 and 842.14, for 2015 and 2016, respectively. 4-10.

(Sta. Lucia Company) Reported profit under average method Difference in inventory using FIFO Beginning inventory Ending inventory Profit under FIFO basis

34

2014 P3,600,000

2015 P5,000,000

2016 P7,000,000

40,000 P3,640,000

(40,000) 120,000 P5,080,000

(120,000) 650,000 P7,530,000

Chapter 4 - Inventories

4-11.

(City Company) Cost (under FIFO basis) Net realizable value (40,000 – 12,000) Lower of cost and net realizable value

4-12.

Product

Cost 102 45 24 9

NRV 105 42 22 10

Lower 102 42 22 9

Quantity 4,000 6,000 5,500 7,200

Amount P408,000 252,000 121,000 64,800 P845,800

Dechavez Company (a) Direct Method The profit is computed as follows: Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Profit Cost of goods sold: Beginning inventory Purchases Total cost of goods available for sale Ending inventory Cost of goods sold (b) Allowance method The profit is computed as follows: Sales Cost of goods sold Gross profit Selling expenses General and administrative expenses Decline in NRV Gain on adjustment of allowance Profit Cost of goods sold: Beginning inventory Purchases Total cost of goods available for sale Ending inventory Cost of goods sold

4-14.

P26,000

(Rustan’s Trading)

A B C D Total 4-13.

P26,000 P28,000

(Purple Company)

35

2016 P3,200,000 (1,280,000) P1,920,000 (450,000) (300,000) P 1,170,000 P 480,000 1,400,000 P1,880,000 600,000 P1,280,000 2016 P3,200,000 (1,240,000) P1,960,000 (450,000) (300,000) (40,000 __________P 1,170,000

P 500,000 1,400,000 P1,900,000 (660,000) P1,240,000

2015 P2,900,000 (1,020,000) P1,880,000 (330,000) (310,000) P 1,240,000 P

300,000 1,200,000 P 1,500,000 480,000 P 1,020,000 2015 P2,900,000 (1,080,000) P1,820,000 (330,000 (310,000)

60,000 P 1,240,000

P

380,000 1,200,000 P 1,580,000 500,000 P 1,080,000

Chapter 4 - Inventories

Cost Net realizable value (204,000 – 10,000) Loss 4-15.

P200,000 194,000 P 6,000

(Powder Blue Company) Inventory, January 1 Purchases during the year Cost of goods available for sale Less Inventory, December 31 Cost of goods sold

4-16.

P1,400,000 6,600,000 P8,000,000 1,200,000 P6,800,000

(Philam Grocers Company) (a) Cost of product X and product Y January 1 inventory Purchases Sold December 31 inventory Unit cost (all coming from latest purchase price, as ending inventory is less than latest purchases) Ending inventory at FIFO cost

Product X 2,500 units 7,400 units (7,000 units) 2,900 units

Product Y 1,500 units 4,500 units (5,000 units) 1,000 units

P125 P362,500

P98 P98,000

(b) Sales price (effective 2015) 90% x previous SP Estimated selling cost Net realizable value Lower of cost and net realizable value, per unit Number of units in ending inventory Inventory value at lower of cost and NRV Total inventory value at December 31, 2016

Product X P135.00 (13.50) P121.50 P121.50 2,900 units P352,350 (352,350+98,000)

Product Y P111.60 (11.16) P100.44 P98 1,000 units P98,000 =

P450,350 (c) Cost of goods sold in the statement of comprehensive income Product X Product Y Total Inventory Jan. 1 P 300,000 P135,000 P 435,000 Purchases 916,600 432,500 1,349,100 Goods available for sale P1,216,600 P567,500 P1,784,100 Ending inventory at cost 362,500 98,000 460,500 Cost of goods sold P1,323,600 (d) Inventory at cost P460,500 Inventory at lower of cost and NRV 450,350 Required allowance P 10,150 Existing allowance 15,000 Gain on adjustment of allowance P 4,850 (e)

Inventory Income Summary

460,500

(or using the cost of goods sold method)

36

460,500

Chapter 4 - Inventories

Inventory, December 31 Cost of goods sold Purchases Inventory, January 1

460,500 1,323,600 1,349,100 435,000

Allowance to Reduce Inventory to NRV Gain on Adjustment of Allowance to Reduce Inventory to NRV 4-17.

4,850 4,850

(DEC Company) (a)

(b)

Gross profit is 40% based on sales Merchandise inventory, January 1, 2016 Purchases for the year Cost of goods available for sale Less estimated cost of goods sold (4,200,000 x 60%) Estimated cost of ending inventory Physical inventory on December 31, 2016 Estimated cost of the missing inventory Gross profit is 40% based on cost of sales Merchandise inventory, January 1, 2016 Purchases for the year Cost of goods available for sale Less estimated cost of goods sold (4,200,000/1.40) Estimated cost of ending inventory Physical inventory on December 31, 2016 Estimated cost of the missing inventory

4-18.

Estimated cost of goods sold (705,000 – 18,000)/1.20 Add Inventory at July 20, 2016 Cost of goods available for sale Less net purchases for the period (650,000 – 12,000 + 6,000) Estimated cost of June 30, 2016 inventory

4-19.

(Manel’s Company) Merchandise inventory, January 1 Purchases (1,000,000 + 40,000 – 60,000) Cost of goods available for sale Estimated cost of goods sold (3,200,000 x 70%) Estimated ending inventory Less goods undamaged located in showroom (200,000 + 80,000) Estimated cost of merchandise destroyed by the flood

4-20.

P 450,000 3,150,000 P3,600,000 2,520,000 P 1,080,000 500,000 P 580,000

P 450,000 3,150,000 P3,600,000 3,000,000 P 600,000 500,000 P 100,000 P572,500 205,000 P777,500 644,000 P133,500

P2,000,000 980,000 P2,980,000 2,240,000 P 740,000 280,000 P 460,000

(Herminia Company) Inventory, January 1 Purchases Purchase returns Total

P 200,000 P5,000,000 (80,000)

37

4,920,000 P5,120,000

Chapter 4 - Inventories

Estimated cost of goods sold (7,380,000 – 180,000) x 60%) Estimated cost of ending inventory Goods in transit Estimated cost of ending inventory 4-21.

(Old Rose Company) Inventory, January 1, 2016 Purchases Freight in Cost of goods available for sale Estimated cost of goods sold (2,200,000 – 50,000) x 70% Estimated cost of ending inventory Inventory per actual count Shortage in inventory

4-22.

P1,000,000 800,000 20,000 P1,820,000 1,505,000 P 315,000 160,000 P 155,000

(Blazing Red Company) Inventory, January 1, 2016 Purchases: Payments to suppliers Accounts Payable, 8/28/16 Accounts Payable, 1/1/16 Cost of goods available for sale Estimated cost of goods sold: Collections from customers Accounts Receivable, 8/28/16 Accounts Receivable, 1/1/16 Sales Cost percentage Estimated cost of ending inventory Less undamaged goods: Goods out on consignment Goods in transit Estimated inventory fire loss

4-23.

4,320,000 P 800,000 ( 100,000) P 700,000

P 575,400 P1,950,000 491,400 ( 352,560)

P3,015,200 515,560 ( 522,360) P3,008,400 70%

P 195,000 69,500

2,088,840 P2,664,240

2,105,880 P 558,360

264,500 P 293,860

(Chic Department Store) (a)

(FIFO cost basis Inventory, June 1 Purchases Available for sale Sales Inventory, June 30 at retail Cost percentage (2,400,000/4,000,000) Estimated cost of inventory Cost of goods available for sale

Cost P 355,000 2,400,000 P2,755,000

Retail P 750,000 4,000,000 P4,750,000 3,500,000 P1,250,000 60% P 750,000 P2,755,000

Less estimated cost of ending inventory Estimated cost of goods sold

750,000 P2,005,000

38

Chapter 4 - Inventories

(b)

Average cost basis Inventory, June 30 at retail Cost percentage (2,755,000/4,750,000) Estimated cost of inventory Cost of goods available for sale

P1,250,000 58% P 725,000 P2,755,000

Less estimated cost of ending inventory

725,000

Estimated cost of goods sold

4-24.

P2,030,000

(London Company) Average cost retail Cost Beginning Inventory P145,000 Purchases 283,920 Additional markups Markup cancellations Markdown Markdown cancellations ________ Total available for sale P428,920 Cost to retail ratio 428,920/565,600 = 75.8% Sales, net of sales returns Ending inventory at retail Ending inventory at average cost retail (130,800 x 75.8%)

4-25.

(434,800) 130,800 P 99,146

(Alemars Drygoods, Inc.) Retail P1,050,000 735,000 80,000 ( 15,000) (105,000) P1,745,000 (1,050,000) P 695,000 665,000 P 30,000

Beginning Inventory Purchases Markups (1,600 x 50) Markup cancellations (300 x 50) Markdowns Total Sales Revenue Ending Inventory, at retail Physical inventory on January 31, 2016 Inventory shortage at retail value 4-26.

Retail P160,000 420,800 25,200 (9,200) (38,100) 6,900 P565,600

(Uniwide Sales) (a) (1) Average retail Cost P185,700 339,380 ( 11,000) 7,300 2,000

Beginning Inventory Purchases Purchase Allowance Freight In Departmental Transfers In Additional Markups Markup Cancellations Markdowns (6,000 – 4,500)

_________

39

Retail P202,000 458,000

3,000 12,000 ( 2,500) (1,500)

Chapter 4 - Inventories

Total Sales Inventory Shortage Ending Inventory, at retail Cost to retail ratio (523,380/671,000) Ending Inventory, at estimated average cost

P523,380

P671,000 (374,000) (7,000) P290,000 78% P226,200

(2) FIFO retail (exclude the beginning inventory in computing the cost ratio) 337,680/469,000 = 72% Ending inventory at FIFO cost 72% x P290,000 = P208,800 (b) Cost of goods sold Average P523,380 (226,200) P297,180

Goods available for sale Ending inventory Cost of goods sold

4-27.

FIFO P523,380 (208,800) P314,580

(Grand Central, Inc.)

(a) Profit reported for 2016 Adjustments: Overstatement of beginning inventory Understatement of ending inventory Goods still in transit shipped to customers FOB destination recorded as sales (40% x 60,000); related cost was excluded in ending inventory (40% x 52,000), net Purchases of 2015 recorded in 2016 100,000 Correct net income for 2016 (b) Understated 2015 ending inventory Understated 2015 purchases Net overstatement in 2015 profit 4-28.

P658,000 71,000 96,000

(3,200)

P921,800

Effect on 2015 profit P 71,000 understated 100,000 overstated P 29,000

(USTFU Company) (a) December 31, 2016 Loss on Purchase Commitments 50,000 Estimated Liability on Purchase Commitments 1,000 x (1,200 – 1,150)

50,000

February 28, 2017 Purchases Estimated Liability on Purchase Commitments Accounts Payable

40

1,150,000 50,000 1,200,000

Chapter 4 - Inventories

(b) December 31, 2016 Loss on Purchase Commitments 50,000 Estimated Liability on Purchase Commitments

50,000

February 28, 2017 Purchases Estimated Liability on Purchase Commitments Loss on Purchase Commitments Accounts Payable

1,100,000 50,000 50,000

1,200,000

(c) December 31, 2016 Loss on Purchase Commitments 50,000 Estimated Liability on Purchase Commitments

50,000

February 28, 2017 Purchases 1,200,000 Estimated Liability on Purchase Commitments 50,000 Accounts Payable Recovery of Loss on Purchase Commitments

1,200,000 50,000

MULTIPLE CHOICE QUESTIONS Theory MC1 MC2 MC3 MC4 MC5

B A D B D

MC6 MC7 MC8 MC9 MC10

A A D A A

MC11 MC12 MC13 MC14 MC15

C A A C D

MC16 MC17 MC18 MC19 MC20 MC21

A D D C D D

Problems MC22

D

Invoice price (90,000 x .80 x .90) Freight charge

P64,800 5,000

Total cost of inventory

P69,800

MC23

C

Invoice price (150,000 x .85 x .90 x .95)

MC24

A

Invoice price Cash discount (109,012.50 x 2%) Cash payment within the discount period

41

P109,012.50 P109,012.50 (2,180.25) P106,832.25

Chapter 4 - Inventories

MC25

B

Purchases of compatibles Purchases of software package Returns and allowances Net purchases Total discounts available (4,100,000 x 3%) Purchase discounts taken Discounts lost

MC26

D

P 96,000

Reported inventory, December 31 Goods still in transit purchased FOB shipping point Correct amount of inventory

MC27

MC28

B

C

B

MC30

C

MC31

C

Reported amount of inventory Goods sold in transit shipped FOB destination not included in inventory (490,000 – 40,000 = 450,000; 450,000 ÷1.5) Goods purchased in transit shipped FOB shipping point plus freight cost (600,000 + 60,000) Goods out on consignment (300,000 ÷1.5 = 200,000; 200,000 + 30,000) Correct inventory, December 31 Reported amount of inventory Merchandise in the delivery department excluded in inventory Imported goods not included, trust receipts already accepted Goods in transit shipped FOB destination included in inventory

MC33

A

C

P3,000,000 300,000 660,000 230,000 P4,190,000 P5,000,000 80,000 800,000 (25,000) P5,855,000

Inventory taken by physical count Goods purchased in transit FOB shipping point excluded

P77,500 6,000

Correct amount of inventory

P83,500

Direct materials Direct materials purchased in transit, FOB shipping point Work in process Finished goods Goods on consignment (150,000 x 80%) Total cost of inventory Mark up on merchandise on consignment (104,000 ÷ 1.3 = 80,000; 80,000 x .30) Goods held on consignment Mark up on goods out on approval (32,500 – 25,000) Reduction in inventory at December 31

MC32

P1,500,000 50,000 P1,550,000

Correct merchandise inventory MC29

P3,280,000 900,000 (80,000) P4,100,000 P123,000 (27,000)

P550,000 90,000 380,000 450,000 120,000 P1,590,000 P24,000 56,000 7,500 P87,500

Sales (3,000 x 35) + (2,000 x 36) + (1,000 x 37) Cost of sales (4,000 x 25) + (2,000 x 26)

P214,000 152,000

Gross profit on sales

P 62,000

1/12 1/22 Total

1,600 @ 8.00 4,800 @ 9.60 6,400

12,800 46,080 58,880 / 6,400 units

42

P9.20

Chapter 4 - Inventories

MC34

B

Confidence: cost 22; NRV = 30 – 3 = 27 Positive attitude: cost 55; NRV = 80 – 28 = 52

MC35

C

Product H 1,000 x 25 Product O 2,000 x 36 Product P 3,000 x 120 Product E 4,000 x 18 Total inventory value

MC36

C

Beginning inventory Purchases (400,000 + 500,000 + 600,000) Available for sale Cost of goods sold (2,240,000 ÷ 1.4)

P 600,000 1,600,000 P2,200,000 1,600,000

Cost of inventory before the fire

P 500,000

MC37

C

P 25,000 72,000 360,000 72,000 P529,000

Inventory, beginning Purchases (2,550,000 + 250,000 – 300,000) Cost of goods sold (2.8M + 900,000 – 700,000 = 3.0M sales 3.0M / 1.25 Inventory, ending Physical inventory Amount of inventory shortage

MC38

MC39

MC40

B

D

C

Lower – P22 Lower – P52

P180,000 2,500,000 (2,400,000) P280,000 110,000 P170,000

Total cost of goods sold for 2014 and 2015 (1.04M + 1.55M) Total sales for 2014 and 2015 (1.7M + 2.0M) Average cost rate (2,590,000/3,700,000)

P2,590,000 P3,700,000 70%

Inventory, January 1, 2016 Purchases Total cost of goods available for sale Estimated cost of goods sold (2,500,000 x 70%) Estimated cost of ending inventory Cost of merchandise out on consignment (150,000 x 70%) Cost of goods undamaged (in transit FOB shipping point)

P 520,000 2,180,000 P2,700,000 1,750,000 P950,000 (105,000) (95,000)

Cost of inventory lost by fire

P750,000

Beginning inventory Net purchases (378,245 – 10,295) Estimated cost of goods sold (450,200 – 5,100) x 78%* Estimated cost of ending inventory Cost of undamaged inventory Realizable value of damaged merchandise

P105,650 367,950 (347,178) P126,422 (69,738) (5,000)

Estimated fire loss *Cost rate in 2015 Cost of goods sold (120,160 + 394,366 – 105,650 = 408,876 Net sales (530,180 – 5,980) = 524,200 Direct materials used (400,000 + 1,280,000 – 740,000) Direct labor Manufacturing overhead (50% x 960,000)

P 51,684

43

= 78%

P940,000 960,000 480,000

Chapter 4 - Inventories

Total manufacturing cost Work in process, beginning Total cost put into process Cost of goods sold (4.0M x 75%) Finished goods, end Cost of goods available for sale Finished goods, beginning

P2,380,000 1,100,000 P3,480,000 P3,000,000 1,310,000 P4,310,000 (1,500,000)

Cost of work in process lost by fire MC 41

C Inventory, January 1 Purchases Purchase returns Freight in Available for sale Cost to retail ratio (1,908,000/3,180,000=60%) Net sales (2,365,000 – 62,000) Ending inventory, at retail Physical count of inventory at retail Inventory pilferage, at retail

Cost P 617,000 1,281,000 (21,000) 31,000 P1,908,000

D Inventory, January 1 Purchases Freight in Net markups (18,900 – 7,800) Markdowns Available for sale Cost to retail ratio (263,802/376,860 = 70%)

MC43

A

C

P 58,200 Cost P47,075 213,327 3,400 _________ P263,802

Retail P70,025 306,375 11,100 (10,640) P376,860

Cost of goods sold (70% x 320,500)

P224,350

Available for sale at retail Sales Ending inventory, at retail Physical count of inventory Inventory shortage, at retail

P376,860 (320,500) P56,360 39,390 P16,970

Estimated loss from inventory shortage (16,970 x 70%) MC44

Retail P1,057,000 2,158,000 (35,000) ___________ P3,180,000 (2,303,000) P877,000 780,000 P 97,000

Cost of inventory pilferage (97,000 x 60%) MC42

2,810,000 P 670,000

Beginning inventory, at retail Purchases Net markups Net markdowns Cost of goods available for sale, at retail Sales revenue Ending inventory, at retail Cost to retail ratio (143,000/260,000 = 55%) Ending inventory, at estimated cost

44

P11,879 P60,000 220,000 20,000 (40,000) P260,000 (180,000) P80,000 55% P44,000

Chapter 4 - Inventories

MC45

D

Reported profit Overstated ending inventory Understated beginning inventory Understated purchases

P600,000 (10,000) (4,000) (100,000)

Adjusted profit for the year

P486,000

45