INTERMEDIATE ACCOUNTING I

INVENTORIES

1. On January 2 , 2012, Journal Company purchases goods from Times Company, a company in Singapore for an
invoice amount of S$100,000 if paid within the normal credit period of 10 days. However, payment maybe
deferred up to 3 months subject to a revised invoice in the amount of S$102,000. On January 2, 2012 the
exchange rate was P34:S$1. Import duties and transport charges amounted to P500,000 and P300,000
respectively. Journal Co. paid the invoiced amount on April 1, 2012, on this date the exchange rate was P35:S$1
Questions:
a. What amount should the goods be initially recorded?
b. What total amount of exchange loss and interest costs should the company recognize?

2. On December 20, 2012, Rolex Company purchase goods costing P100,000. The terms were FOB Destination.
Some of the costs incurred in connection with the sale and delivery of the goods were as follows: Packaging
shipment P2,000; Shipping P3,000 and special handling charges P4,000. These goods were received in
December 31, 2012. In December 31, 2012 statement of financial position, what amount of these goods be
included in inventory?

3. The following on hand at December 31, 2012 for Victor Company is valued at a cost of P947,800. The following
items were not included in this inventory amount:
a. Purchased goods in transit, shipped FOB destination. Invoice price-P32,000, which includes freight
charges of P1,600.
b. Goods held on consignment by Victor at a sales price of P28,000, including sales commission of 20% of
the sales price.
c. Goods sold to Sensual Company, under terms FOB destination, invoiced for P24,400 which includes
P1.000 freight charges to deliver the goods. Goods are in transit.
d. Purchased goods in transit, terms FOB shipping point. Invoice price P48,000. Freight costs, P3,000.
e. Goods out on consignment to Can Company, sales price P36,400. Shipping cost of P2,000.

Mark-up cost for all sales is 30%. What is the correct cost of inventory to be reported in Victory’s financial
statements?

4. On June 1, 2012 Concept Corp, sold merchandise with a list price of P200,000 to Randall on account. Concept
allowed trade discounts of 30%, 20% and 10%. Credit terms were 2/15, n/40 and the sale was made FOB
Shipping point. Concept prepaid P4,000 of delivery costs for Randall as an accommodation. On June 3, 2012,
Concept received from Randall returned merchandise with an invoice price of P50,000 due to minor defects. On
June 14, 2012, Randall settled its account in full to Concept. How much net cash remittance did Concept receive?

5. On September 30, 2012, a fire at Mill Company’s only warehouse caused severe damage to its entire inventory.
Based on recent history Mill has a gross profit of 30% of net sales. The following information is available from
Mill’s records for the nine months ended September 30, 2012.

Inventory at 01/01/12 550,000

Total purchases received and recorded from January to date of
Fire 3,000,000
Total freight cost of goods purchased and received 60,000
Total credit memo received on goods purchased and received 200,000
Total discounts taken on purchases 80,000
Invoice received for goods purchased but still in transit shipped on
September 30,2012. FOB Shipping point 120,000
Total sales delivered and recorded from January to date of Fire 3,600,000
Unrecorded sales invoice for goods delivered 300,000
Total sales returns accounted and recorded to date of Fire 160,000
Total sales discounts taken by customers on recorded sales 40,000
 A physical inventory disclosed usable damaged goods which Mill estimates can be sold to a jobber for P50,000.
On December 31, 2012 Mill Company received P5,000,000 from insurance company as compensation for the
damaged warehouse and P550,000 for the damaged value of merchandise inventory. What amount of loss
should the company recognize with regards to the merchandise inventory?

6. The records of Morning Company show the following for the current year:

Cost Retail
Beginning Inventory 340,000 640,000
Purchases 4,500,000 7,300,000
Freight-In 100,000
Purchase return 150,000 250,000
Purchase allowance 90,000
Departmental transfer-in 100,000 160,000
Net mark up 150,000
Net mark down 500,000
Sales 6,600,000
Sales Allowance 50,000
Sales returns 150,000
Empployee discount 100,000
Spoilage and breakage 200,000

What is the amount of estimated ending inventory under conventional retail and average cost retail respectively?

7. Evening Company uses the FIFO retail inventory method of determining the value of their inventory.
The following information as follows:

Cost Retail
Beginning Inventory 600,000 1,500,000
Purchases 3,048,400 5,500,000
Freight-In 80,000
Purchase return 140,000 180,000
Mark ups 600,000
Mark up cancellation 100,000
Mark downs 1,300,000
Mark down
cancellation 300,000
Sales 4,470,000
Sales retunrs 150,000
Sales discounts 200,000
Employee discounts 400,000

What would be the estimated cost of ending inventory?