Problem 7-18

Units Unit cost Total cost

1. FIFO - periodic
Lot No. 4 500 100 50,000
5 14,500 90 1,305,000
15,000 1,355,000

2. Beginning inventory 10,000 80 800,000

Purchases: Lot No. 1 2,000 100 200,000
2 8,000 110 880,000
3 6,000 120 720,000
4 9,500 100 950,000
5 14,500 90 1,305,000
Goods available for sale 50,000 4,855,000

Weighted average (4,855,000/50,000) 15,000 97.10 1,456,500

3. Specific identification
Lot 3 6,000 120 720,000
4 9,000 100 900,000
15,000 1,620,000

Goods available Inventory-Dec. 31 Cost of sales

FIFO 4,855,000 1,355,000 3,500,000
Weighted average 4,855,000 1,456,500 3,398,500
Specific identification 4,855,000 1,620,000 3,235,000

94
Problem 7-19
Units Unit cost Total cost
FIFO
December 17 10,000 45 450,000
22 20,000 43 860,000
30,000 1,310,000

Average method
December 1 10,000 52 520,000
7 30,000 50 1,500,000
17 60,000 45 2,700,000
22 20,000 43 860,000
Available for sale 120,000 5,580,000

Inventory (5,580,000/120,000) 30,000 46.50 1,395,000

FIFO Average
Goods available for sale 5,580,000 5,580,000
Less: Inventory – December 31 1,310,000 1,395,000
Cost of goods sold 4,270,000 4,185,000

Problem 7-20

The stock cards are not prepared anymore. The end results are simply given.

Units Unit cost Total cost

FIFO
Ending inventory 4,000 210 840,000

Cost of sales 2,700,000

Average method
Ending inventory 4,000 252.50 1,010,000

Cost of sales 2,530,000

Problem 7-21
Purchases Sales Inventory increment
2006 5,000 4,000 1,000
2007 9,000 7,000 2,000
2008 15,000 12,000 3,000
Total inventory – December 31, 2008 (units) 6,000

Sales 1,200,000
Cost of sales:
Inventory – December 31, 2007 (3,000 x 60) 180,000
Purchases 1,125,000
Goods available for sale 1,305,000
Less: Inventory – December 31, 2008 (6,000 x 75) 450,000 855,000
Gross income 345,000
 95

Problem 7-22
Units Unit cost Total cost
FIFO
October 1 15,000 60 900,000

Weighted average – periodic

January 1 10,000 40 400,000
April 1 15,000 50 750,000
October 1 25,000 60 1,500,000
Goods available for sale 50,000 2,650,000
Less: Sales 35,000
Ending inventory 15,000

Weighted average (2,650,000/50,000) 15,000 53 795,000

Units Unit cost Total cost

Moving average – perpetual
January 1 10,000 40 400,000
31 ( 5,000) 40 ( 200,000)
Balance 5,000 40 200,000
April 1 15,000 50 750,000
Total 20,000 47.50 950,000
July 31 (18,000) 47.50 ( 855,000)
Balance 2,000 47.50 95,000
October 1 25,000 60__ 1,500,000
Total 27,000 59.07 1,595,000
December 31 (12,000) 59.07 ( 708,840)
Balance 15,000 59.07 886,160

FIFO Weighted average

Inventory – January 1 400,000 400,000 Purchases

2,250,000 2,250,000
Goods available for sale 2,650,000 2,650,000
Less: Inventory – December 31 900,000 795,000
Cost of sales 1,750,000 1,855,000
Cost of sales – Weighted average perpetual
January 31 Sale 200,000
July 31 Sale 855,000
December 31 Sale 708,840
Total cost of sales 1,763,840

Problem 7-23
Units Unit cost Total cost
FIFO
October 1 purchase 300 10,000 3,000,000

96
Units Unit cost Total cost
Weighted average
January 1 200 7,500 1,500,000
April 5 300 9,000 2,700,000
October 1 500 10,000 5,000,000
Goods available for sale 1,000 9,200,000

Inventory – December 31 (9,200,000/1,000) 300 9,200 2,760,000

FIFO Weighted average

Inventory – January 1 1,500,000 1,500,000

Purchases 7,700,000 7,700,000
Goods available for sale 9,200,000 9,200,000
Less: Inventory – December 31 3,000,000 2,760,000
Cost of goods sold 6,200,000 6,440,000
Problem 7-24

Sales 6,000,000
Gross profit (2,400,000)
Cost of goods sold 3,600,000
Inventory – July 31 (see below) 928,000
Cost of goods available for sale 4,528,000
Purchases for July (3,174,000)
Inventory – July 1 1,354,000
 Quantity Unit cost Total cost
July 12 1,000 60 60,000
25 14,000 62 868,000
FIFO inventory – July 31 15,000 928,000
Problem 7-25

1. Cost of units available for sale for July 1,452,100

Purchases for July (1,042,100)
Cost of inventory – July 1 410,000

Number of units – July 1 (410,000 / P4) 102,500

2. July 1 inventory 102,500

Purchases for July 200,000
Total units available for sale for July 302,500
July 31 inventory ( 60,000)
Units sold during the month of July 242,500

3. Average unit cost (1,452,100 / 302,500) 4.80

Inventory – July 31 (60,000 x 4.80) 288,000

Another computation (1,452,100 – 1,164,100) 288,000

97

Problem 7-26
Units Average unit cost Total cost

1. Inventory – December 31, 2007

2007 layer 11,000 138 1,518,000

2. Inventory – December 31, 2006 14,000 1,480,000

Purchases – 2007 12,000 138 1,656,000
Materials available 26,000 3,136,000
Less: Inventory – December 31, 2007 11,000 1,518,000
Raw materials used – 2007 15,000 1,168,000

3. Inventory – December 31, 2008

2008 layer 15,000 153 2,295,000

4. Inventory – December 31, 2007 11,000 1,518,000

Purchases – 2008 20,000 153 3,060,000
Materials available 31,000 4,578,000
Less: Inventory – December 31, 2008 15,000 2,295,000
Raw materials used – 2008 16,000 2,283,000

Problem 7-27

Available for sale 42,000

Units sold (2,800,000/100) 28,000
Ending inventory 14,000

Units Unit cost Total cost

FIFO
September 5 2,000 43.00 86,000
25 12,000 42.50 510,000
14,000 596,000

Weighted average (1,753,500/42,000) 14,000 41.75 584,500

Average FIFO
Available for sale 1,753,500 1,753,500
Less: Ending inventory 584,500 596,000
Cost of sales 1,169,000 1,157,500

(Sch. 1) (Sch. 2)

98
Problem 7-28
2006 2007 2008
Cost of sales – Average 1,500,000 2,000,000 2,400,000
Understatement of ending inventory:
2006 ( 150,000) 150,000
2007 ( 200,000) 200,000
2008 _______ ________ ( 270,000)
Cost of sales – FIFO 1,350,000 1,950,000 2,330,000

2006 2007 2008

Sales 3,000,000 4,000,000 4,800,000
Cost of sales – FIFO 1,350,000 1,950,000 2,330,000
Gross income 1,650,000 2,050,000 2,470,000
Operating expenses 800,000 900,000 1,000,000
Operating income 850,000 1,150,000 1,470,000

Proof
Net income – Average 700,000 1,100,000 1,400,000
Understatement of ending inventory:
2006 150,000 ( 150,000)
2007 200,000 ( 200,000)
2008 _______ _____ 270,000
Net income – FIFO 850,000 1,150,000 1,470,000

Problem 7-29
Lower of
Units cost or NRV Inventory value
Materials:
R 1,000 100 100,000
S 2,000 250 500,000
T 3,000 300 900,000

Goods in process:
X 4,000 480 1,920,000
Y 5,000 620 3,100,000

Finished goods:
A 2,000 790 1,580,000
B 2,000 730 1,460,000

Valuation at lower of cost or NRV 9,560,000

99
Problem 7-30
(Lower of cost or NRV)
Units Unit cost NRV Inventory value
A 1,000 120 150 120,000
B 1,500 110 120 165,000
C 1,200 150 140 168,000
D 1,800 140 160 252,000
E 1,700 130 160 221,000
926,000

Problem 7-31

Product Unit cost NRV Lower of cost or NRV

1 700 650 650
2 475 745 475
3 255 250 250
4 450 740 450

Problem 7-32

Units Unit cost NRV Lower of cost or NRV

Appliances:
A 500 2,500 2,700 1,250,000
B 300 3,700 3,600 1,080,000

Car accessories
C 600 1,400 2,000 840,000
D 800 2,100 2,000 1,600,000
Valuation at lower of cost or NRV 4,770,000
Problem 7-33

1. September 30 (40,000 x 75) 3,000,000

December 31 (10,000 x 90) 900,000
Total FIFO cost 3,900,000
NRV (50,000 x 72) 3,600,000
Loss on inventory writedown 300,000

Inventory – January 1 1,200,000

Purchases 9,400,000
Purchase discount ( 400,000)
Goods available for sale 10,200,000
Less: Inventory – December 31 3,900,000
Cost of goods sold before inventory writedown 6,300,000
Loss on inventory writedown 300,000
Cost of goods sold after inventory writedown 6,600,000
2. Inventory – December 31 3,900,000
Income summary 3,900,000

100

Loss on inventory writedown 300,000

Allowance for inventory writedown 300,000

Problem 7-34

a. No adjustment is necessary because the market price is higher than the agreed price. Any gain on purchase commitment is not recognized.

b. No adjustment is necessary because the market price has not declined as of December 31, 2008. The market decline is only a possible loss.

c. Loss on purchase commitment (10,000 x 30) 300,000

Estimated liability for purchase commitment 300,000

d. Purchases (100,000 x 150) 1,500,000

Loss on purchase commitment 200,000
Estimated liability for purchase commitment 300,000
Accounts payable (10,000 x 200) 2,000,000

e. Purchases 2,000,000
Estimated liability for purchase commitment 300,000
Accounts payable 2,000,000
Gain on purchase commitment 300,000

Problem 7-35

12/31/2008 Loss on purchase commitment 500,000

Estimated liability for PC 500,000

03/31/2009 Purchase (100,000 x 54) 5,400,000

Estimated liability for PC 500,000
Accounts payable 5,500,000
Gain on purchase commitment 400,000

Problem 7-36

Purchase price 26,850,000

Improving and subdividing cost 43,500,000
Total cost 70,350,000

Sales price Fraction Cost

Group
1 (20 x 3,000,000) 60,000,000 60/105 40,200,000
2 (10 x 2,500,000) 25,000,000 25/105 16,750,000
3 (10 x 2,000,000) 20,000,000 20/105 13,400,000
105,000,000 70,350,000

101

Cost per lot Unsold Cost

Group
1 (40,200,000/20) 2,010,000 5 10,050,000
2 (16,750,000/10) 1,675,000 4 6,700,000
3 (13,400,000/10) 1,340,000 3 4,020,000
20,770,000
Problem 7-37

Inventory Accounts payable Net sales

Unadjusted 1,750,000 1,200,000 8,500,000
1 - - ( 35,000)
2 50,000 50,000 -
3 20,000 - -
4 26,000 - ( 40,000)
5 25,000 - -
6 30,000 - -
7 - 60,000 -
8 10,000 20,000 -_ __
Adjusted 1,911,000 1,330,000 8,425,000

Problem 7-38

Inventory Accounts payable Net sales

Unadjusted 1,250,000 1,000,000 9,000,000
1 ( 165,000) ( 165,000) -
2 ( 20,000) - -
3 - - ( 40,000)
4 210,000 - -
5 25,000 25,000 - ___
1,300,000 860,000 9,040,000

Problem 7-39

1. Biological asset 600,000

Cash 600,000

2. Biological asset 700,000

Gain from change in fair value 700,000

3. Biological asset 100,000

Gain from change in fair value 100,000

4. Loss from change in fair value 90,000

Biological asset 90,000

102
Problem 7-40

Requirement 1

1. To record the purchase of one animal aged 2.5 years on July 1.

Biological assets 108

Cash 108

2. To record the birth of one animal on July 1 with fair value of P70.

Biological assets 70
Cash 70

3. To record the change in the fair value:

Biological assets 222

Cash 222

Fair value of 10 animals on January 1 (10 x P100) 1,000

Newborn animal on July 1 at fair value 70
Acquisition cost of one animal on July 1 108
Total book value of biological assets – December 31 1,178

Fair value of 3-year old animals on December 31 (11 x P120) 1,320

Fair value of 0.5-year old animal on December 31, the newborn (1 x P80) 80
Total fair value – December 31, 2008 1,400
Book value of biological assets – December 31 1,178
Increase in fair value 222

Requirement 2

Statement of financial position :

Biological assets 1,400
Income statement:
Gain from change in fair value (70 + 222) 292

Problem 7-41 Answer C

Physical count 1,500,000

Problem 7-42 Answer D

Physical count 2,500,000

Merchandise shipped FOB shipping point on December 30, 2008
from a vendor 100,000
Goods shipped FOB shipping point to a customer on January 4, 2009 400,000
Correct inventory 3,000,000

103

Problem 7-43 Answer D

Problem 7-44 Answer D

Markup (40% x 500,000) 200,000

Goods received on consignment 400,000
Total reduction 600,000

Problem 7-45 Answer B

Inventory shipped on consignment 600,000

Freight paid 50,000
Consigned inventory 650,000

Problem 7-46 Answer A

Reported inventory 2,000,000

Goods sold in transit, FOB destination 200,000
Goods purchased in transit, FOB shipping point 300,000
Correct amount of inventory 2,500,000

Problem 7-47 Answer A

Problem 7-48 Answer A

Consignment sales revenue (40 x P10,000) 400,000

Problem 7-49 Answer B

Sales (900 x 1,000) 900,000

Commission (10% x 900,000) ( 90,000)
Payable to consignor 810,000

Problem 7-50 Answer C

List price 900,000

Trade discounts 20% x 900,000 (180,000)
720,000
10% x 720,000 ( 72,000)
Invoice price 648,000
Freight 50,000
Cost of purchase 698,000

104

Problem 7-51 Answer B

List price 1,000,000

Trade discounts 20% x 1,000,000 ( 200,000)
800,000
10% x 800,000 ( 80,000)
Invoice price 720,000
Cash discount (5% x 720,000) ( 36,000)
Net amount 684,000
Freight charge 50,000
Total remittance 734,000
Problem 7-52 Answer A

Problem 7-53 Answer B

Purchases of IBM compatibles 1,700,000

Purchases of commercial software packages 1,200,000
Total 2,900,000
Less: Purchase return ( 50,000)
Net purchases 2,850,000

Discounts available on purchases (2% x 2,850,000) 57,000

Less: Purchase discount taken 17,000
Purchase discount lost 40,000

Problem 7-54 Answer D

Accounts payable per book 2,000,000

Goods lost in transit, FOB shipping point 100,000
Purchase return ( 50,000)
Adjusted balance 2,050,000

Problem 7-55 Answer D

Accounts payable per book 900,000

Undelivered checks 400,000
Unrecorded purchases on December 28 (150,000 x 98%) 147,000
Purchase on December 20 (200,000 x 95%) 190,000
1,637,000
Problem 7-56 Answer A

Net sales per book 5,000,000

Sales return ( 50,000)
Goods shipped on December 31, 2008 300,000
Goods shipped on January 3, 2009 recorded on December 30, 2008 ( 200,000)
Adjusted balance 5,050,000

105
Problem 7-57 Answer A

Gross sales 4,000,000

Estimated sales return (10% x 4,000,000) ( 400,000)
Net sales 3,600,000

Problem 7-58 Answer A

Units Unit cost Total cost

January 18 15,000 23 345,000
28 10,000 24 240,000
Total FIFO cost 25,000 585,000

Problem 7-59 Answer A

(4,500 x 73.50) 330,750

Problem 7-60 Answer A

Units Unit cost Total cost

January 10 2,000 100 200,000
February 8 3,000 110 330,000
5,000 530,000

Weighted average unit cost (530,000/5,000) 106

Cost of inventory (3,000 x 106) 318,000

Problem 7-61 Answer B

Units Unit cost Total cost

January 1 40,000 5 200,000
January 17 (35,000) 5 (175,000)
Balance 5,000 5 25,000
January 28 20,000 8 160,000
Balance 25,000 7.40 185,000

Problem 7-62 Answer D

Units Total cost
January 1 200 300,000
April 3 300 525,000
October 1 500 1,000,000
Total 1,000 1,825,000
Less: Sales (400 + 400) 800
Ending inventory 200

Average unit cost (1,825,000/1,000) 1,825

Cost of inventory (200 x 1,825) 365,000

106
Problem 7-63 Answer C
Units Unit cost Total cost
January 1 8,000 200 1,600,000
8 ( 4,000) 200 ( 800,000)
4,000 200 800,000
20 12,000 240 2,880,000
(3,680,000/16,000 = 230) 16,000 230 3,680,000

Problem 7-64 Answer C

Problem 7-65 Answer B

Estimated selling price 4,050,000

Cost of disposal ( 200,000)
Net realizable value (lower than cost) 3,850,000

Problem 7-66 Answer B

Estimated sales price 4,000,000

Cost to complete (1,200,000)
Net realizable value 2,800,000

FIFO cost (lower than NRV) 2,600,000

Problem 7-67 Answer B

Inventory – January 1 700,000

Purchases 3,300,000
Goods available for sale 4,000,000
Less: Inventory – December 31 600,000
Cost of goods sold before inventory writedown 3,400,000
Loss on inventory writedown 100,000
Cost of goods sold after inventory writedown 3,500,000

Problem 7-68 Answer C

Sales price Fraction Allocated cost

A (100 x 240,000) 24,000,000 24/60 6,000,000
B (100 x 160,000) 16,000,000 16/60 4,000,000
C (200 x 100,000) 20,000,000 20/60 5,000,000
60,000,000 15,000,000

Problem 7-69 Answer B

Problem 7-70 Answer B