enny Company uses a periodic inventory accounting system and values its inventory by using the lower of cost or
market rule. The allowance method is used in applying the lower of cost or market rule. The company adjusts and closes
its book annually on December 31. Below are the cost and market values of the company’s year-end inventories for a
three-year period:
Date
December 31, 2020
December 31, 2021
December 31, 2022
Cost
700,000
560,000
640,000
Market
700,000
460,000
580,000
Which of the following journal entries would be correct as of Dec. 31, 2022, to apply the lower of cost or market rule?
A. Inventory
580,000
Income summary
580,000
B. Loss Due to Market Valuation
60,000
Allowance to Reduce Inventory to Market
60,000
C. Allowance to Reduce Inventory to Market
40,000
Recovery Due to Market Valuation
40,000
D. Cost of Goods Sold
60,000
Allowance to Reduce Inventory to Market
60,000
1.
Allowance for write down 2021 (560,000 – 460,000)
Allowance for write down 2022 (640,000 – 580,000)
Reversal of write down 2022
100,000
60,000
40,000
C
1)Angela Company reported the ending inventory on December 31, 2022 at P4,000,000. None of the following items were
included when the total amount of the ending inventory was computed:
Goods that are on consignment to another entity
200,000
Goods sold by the entity and shipped FOB destination were in transit on December 31, 2022 and
received by the customer on January 2, 2023
400,000
Goods purchased by the entity and shipped FOB seller in transit December 31, 2022 and received by
the entity on January 2, 2023
600,000
Goods sold by the entity and shipped FOB shipping point were in transit on December 31, 2022 and
received by the customer on January 2, 2023
800,000
What is the correct amount of inventory on December 31, 2022?
A. 5,000,000
B. 5,200,000
C. 6,000,000
D.
4,600,000
1.
Unadjusted balance of inventory
+sent out on consignment
+sold in transit FOB destination
+purchase on transit FOB seller
Adjusted balance
4,000,000
200,000
400,000
600,000
5,200,000
B
1) Madel Company revealed inventory on December 31, 2023 at P3,250,000 based on a physical count priced at cost,
and before any necessary adjustment for the following:
Merchandise costing P300,000 shipped FOB shipping point from a vendor on December 30, 2023, was received on
January 5, 2024.
Merchandise costing P220,000 shipped FOB destination from a vendor on December 28, 2023 was received on
January 3, 2024.
Merchandise costing P380,000 was shipped to a customer FOB destination on December 28, 2023 arrived at the
customer’s location on January 6, 2024.
Merchandise costing P120,000 was being held on consignment by Trisha Company.
What amount should be reported as inventory on December 31, 2023?
A. 3,670,000
B. 3,930,000
C. 4,050,000
D.
3,250,000
1.
Inventory based on physical count
* Inventory purchased in transit FOB shipping point
* Inventory sold in transit FOB destination
* Inventory sent out consignment
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