Ia - 13
Ia - 13
Ia - 13
Gecelle Company
Gecelle company reported the following information during the current year:
A physical count at year-end resulted in an inventory of P575,00. The gross profit had remained
constant at 25%. The entity suspected that some inventory may have been taken by a new
employee.
Lin Company
Lin Company sold merchandise at a gross profit of 30%. On June 30, all of the inventory was
destroyed by fire.
The entity provided the following information for the six months ended June 30:
Avarice Company
Avarice company has a recent gross profit history of 40% of net sales.
The following data are available from the accounting records for the three months ended in
March 31:
Using the gross profit method, what amount should be reported as cost of inventory on March
31?
Ans: a - 1,125,000
Sol:
Celibacy Company
Celibacy provided the following information for the current year:
At year-end, a physical inventory revealed that the ending inventory was only P420,000. The
gross profit on sales has remained constant at 30%. The entity suspects that some inventory
may have been pilfered by one of the employees.
Sales 3,400,000
Sales Returns (30,000)
Net sales 3,370,000
The sales discounts are ignored for purposes of estimating inventory under the gross profit
method.
Delectable Company
At year-end, Delectable Company experienced a storm surge which caused severe damage to
the entire inventory. Based on recent history, the entity had a gross profit of 25% on sales.
The following information is available for the current year:
What is the estimated cost of goods sold for the current year?
Ans: c - 3,900,000
Sol:
Sales 5,600,000
Sales Returns (400,000)
Net sales 5,200,000
Like sales discounts, sales allowances are ignored in determining net sales under the gross
profit method.
Elusive Company
On September 30, a fire at Elusive company’s only warehouse caused sever damaged to the
entire inventory.
Based on recent history, the entity has a gross profit of 30% on cost of goods sold.
A physical inventory disclosed usable damaged goods which can be sold to a jobber for
P100,000.
The following information is available from the records for the nine months ended September
30:
Karen Company
Karen Company reported the following information for the current year:
Sales 40,000,000
Sales Returns (3,000,000)
Net sales 37,000,000
Multiply by cost ratio 60%
Cost of goods sold 22,200,000
Net sales 100%
Gross profit on sales (40%)
Cost ratio 60 %
Sales allowances and sales discounts are ignored in determining net sales under the gross
profit method.
Claire Company
On December 31, 2020, a big fire caused severe damage to the warehouse of Claire company.
2020 2019
Beginning inventory 1,000,000 -
Purchases 8,000,000 5,600,000
Purchase return ll500,000 100,000
Sales 9,000,000 6,000,000
At the beginning of 2020, the entity changed the policy on the selling prices of the merchandise
in order to produce a gross profit rate of 5% higher than the gross profit rate in 2019.
2019
Cost of goods available for sale
(0 + 5.6M - 100K) 5,500,000
Ending inventory 1,000,000
Cost of goods sold 4,500,000
Sales 6,000,000
Less: Cost of goods sold (4,500,000)
Gross profit 1,500,000
2020
Cost of goods available for sale
(1M + 8M – 500K) 8,500,000
Cost of goods sold (9M x 70 %) l (6,300,000)
Ending inventory 2,200,000
Less : cost of undamaged merchandise
500,000 x 70 % (350,000)
NRV of damaged merchandise (10,000)
Inventory fire loss 1,840,000
Fearless Company
Fearless Company began operations at the beginning of current year. The following information
is available for the current year:
All merchandise is marked to sell at 40% above cost. All sales are credit sales and all accounts
are collectible.
Paragon Company
On September 30, 2020, a fire destroyed most of the merchandise inventory of Paragon
Company.
All goods were completely destroyed except for partially damaged goods that normally sell for
P100,000 and that had an estimated net realizable value of P25,000 and undamaged goods
that normally sell for P60,000.
Historical :
Net sales (2017 to 2019) 9,000,000
COGS (2017 to 2019) l 6,750,000 75 % → cost ratio
Gross profit 2,250,000 25 % → GP rate
Fairy Company
Fairy Company provided the following information:
2019 2020
Sales 7,500,000 4,500,000
Beginning inventory 1,260,000 -
Purchases 6,450,000 3,180,000
Freight in 350,000 220,000
Purchase discounts 90,000 45,000
Purchase returns 120,000 40,000
Purchase allowances 20,000 15,000
Ending inventory 2,355,000
2019 :
Beginning inventory 1,260,000
Net purchases
(6.45M + 350K – 90K – 120K – 20K) 6,570,000
Cost of goods available for sale 7,830,000
Less : ending inventory 2,355,000
COGS 5,475,000
Sales 7,500,000
COGS 5,475,000 73% → cost ratio
Gross profit 2,025,000 27% → GP rate
2020
Beginning inventory 2,355,000
Net purchases (3.18M+ 220K - 45K - 40K -15K) 3,300,000
Cost of goods AFS 5,655,000
Less : COGS ( 4,500,000 x 73 % ) 3,285,000
Ending inventory 2,370,000
Unanimous Company
In December 31, 2020, Unanimous Company had a significant portion of inventory stolen.
The entity determined the cost of inventory not stolen to be P100,000.
2020 2019
Purchases 5,200,000 5,000,000
Purchase returns l 240,000 200,000
Sales 7,880,000 8,200,000
Sales returns and allowances 80,000 200,000
Beginning inventory 1,200,000 2,000,000
2019
Net sales (8,200,000 – 200,000) 8,000,000
COGS
Beginning inventory 2,000,000
Net purchases (5M - 200K) 4,800,000
Cost of goods AFS 6,800,000
Less: ending inventory 1,200,000 5,600,000 → cost ratio 70 %
Gross profit 2,400,000 → GP rate 30 %
2020
Beginning inventory 1,200,000
Net purchases (5.2M - 240K) l 4,960,000
Cost of goods AFS l 6,160,000
Less : COGS
Net sales (7.88M - 80K) 7,800,000
X cost ratio 70 % 5,460,000
Ending inventory 700,000
Less : not stolen (100,000)
Stolen inventory 600,000
Wholesome Company
Wholesome Company sold merchandise on a consignment basis to dealers. The gross profit
was 25% above cost.
The dealer is paid a 10% commission of the sales price for all sales made. All dealer sales are
made on a cash basis.
Sales 9,600,000
COGS (9.6M /125%) 7,680,000
Gross profit 1,920,000
Regatta Company
On December 31, 2020, a fire broke out in the warehouse of Regatta Company destroying all
inventory. The following data are available for the current year:
January 1 December 31
Inventory 500,000
Accounts receivable 480,000 440,000
3. What amount should be reported as inventory fire loss on December 31, 2020?
Ans: d- 500,000
GP rate :
GP 2017 to 2019 3,200,000
Divide by
Sales 2017 to 2019 8,000,000
GP rate 40 %
December 31 January 1
Finished goods 4,500,000 6,000,000
Goods in process - 4,300,000
Raw materials 2,000,000 1,700,000
Factory Supplies 400,000 500,000
During the year, the entity reported sales P20,000,000, purchases P3,800,000, freight
P200,000, direct labor P5,000,000 and manufacturing overhead at 60% of direct labor. The
average gross profit rate is 30% on sales.
4. What amount should be reported as cost of goods in process inventory destroyed by fire?
Ans: a - 3,500,000
Sol:
Ultimate Company
In conducting an audit of Ultimate Company for the year ended June 30,2020, the CPA
observed the physical inventory at an interim date, May 31,2020, instead of at year end.
The following information was obtained from the general ledger.
A 75,000
B (10,000) (15,000)
C (20,000) (20,000)
D (55,000) (55,000)
Waterloo Company
On April 30,2020, a fire damaged the office of Dominica Company. The following balances were
gathered from the general ledger on March 31,2020:
● An examination of the April bank statement and canceled checks revealed checks
written during the period April 1 – 30:
● Inventory with a cost of P260,000 was salvaged and sold for P140,000.
The balance of the inventory was a total loss.
Total Sales
Up to March 30, 2020 3,600,000
April 2020 600,000
Total 4,200,000