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Chapter 12 Ia1
Chapter 12 Ia1
Determined the inventory value applying the lower of cost and net realizable value.
Unit Unit NRV Inventor
s Cost y
A 1,00 120 180 – 20 = 1,000 x 120,000
0 150 120
B 1,50 110 140 – 20 = 1,500 x 165,000
0 120 110
C 1,20 150 170 – 30 = 1,200 x 168,000
0 140 140
D 1,80 140 190 – 30 = 1,800 x 252,000
0 160 140
E 1,70 130 200 – 40 = 1,700 x 221,000
0 160 130
926,000
*Net Realizable = Estimated Selling Price – Cost of Sell
PROBLEM 2
Determine the unit value for each product applying the lower of cost and net realizable value in measuring
inventory.
Product Original Cost Cost to Dispose Est. Selling Price Net Realizable Lower of Cost or NRV
*Net Realizable = Estimated Selling Price – Total Production and Selling Cost
*Net Realizable = Estimated Selling Price – Cost to Dispose
*LCRNV – the measurement of inventory at the lower of cost and net realizable value
PROBLEM 3
Prepare journal entries to adjust the ending inventory under:
a. Direct Method
b. Allowance Method
Direct Method
Ending Inventory 4,800,000
Income Summary 4,800,000
Allowance Method
Ending Inventory 5,000,000
Income Summary 5,000,000
PROBLEM 4
Calculate the value of the inventory under the following approaches:
A. The LCNRV is applied to the individual inventory item
PROBLEM 5
Allowance Method
Sep. 30 (40,000 x 75) 3,000,000
Dec. 31 (10,000 x 90) 900,000
Ending Inventory, cost using FIFO 3,900,000
Net realizable Value (50,000 x 72) 3,600,000
Required Allowance for inventory writedown 300,000
2. Prepare journal entries to record the ending inventory and any inventory
write-down.
Inventory – December 31 3,90000
Income Summary 3,900,000
PROBLEM 6
E. The market price on December 31,2022 is P170. On January 31, 2023 when the 10,000 gallons
shipment is received, the market price is P210.
PROBLEM 7
On November 15, 2022, Planter Company entered into commitment to purchase 100,000 barrels of aviation
fuel for P55 per barrel on March 31, 2023.
By December 31, 2022, the purchase price of aviation fuel had fallen to P50 per barrel.
However, by March 31, 2023, when the entity took delivery of the 100,000 barrels the price of aviation fuel had
risen to P54 per barrel.
Required:
Prepare journal entry on December 31, 2022 & March 31,2023.
12/31/22 Loss on purchase commitment 500,000
Estimated liability on purchase commitment
(54 x 100,000) 5,400,000
4 pesos increase x 100,000 gallons = 400,000 pesos entire gain is recognized because it did not exceed 500,000
pesos
PROBLEM 8
PROBLEM 9
PROBLEM 1O
Solution:
Estimated Sales Price 8,000,000
Cost to complete – processing cost (2,400,000)
Net Realizable Value 5,600,000
PROBLEM 12
What is the amount reported as inventory?
PROBLEM 13
The inventory at year-end determined by physical count had a cost P2,000,000 and a net realizable value 0f
P1,700,000. Any inventory writedown is not yet recorded.
What amount should be reported as cost of goods sold?
A. 5,020,000 B.4,500,000 C. 4,720,000 D. 4,920,000
PROBLEM 14
What is included in the adjusting entry on December 31, 2023?
A. Debit again on reversal of inventory writedown P200,000
B. Credit gain on reversal on inventory writedown P400,000
C. Debit allowance for inventory writedown P200,000
D. Credit allowance for inventory writedown P400,000
PROBLEM 15
What amount should be recognized as loss on purchased commitment in 2022?
A. 850,000 B. 150,000 C. 250,000 D. 0
PROBLEM 16
What amount should be recognized as loss on purchase commitment in 2023?
A. 200,000 B. 100,000 C. 300,000 D. 0
Solution:
Market value – December 31, 2022 5,000,000
Market value – March 31, 2023 4,900,000
Additional loss on purchase commitment in 2023 100,000
PROBLEM 17
What amount of loss from the purchase commitment should be reported in 2022?
A. 240,000 B. 200,000 C. 160,000 D.
360,000
PROBLEM 18
1. What amount should be recognized as loss on purchase commitment on December 31, 2022?
A. 400,000 B. 100,000 C. 300,000 D. 0
2. What amount should be recognized as gain on purchase commitment on February 15, 2023?
A. 400,000 B. 300,000 C. 100,000 D. 0
PROBLEM 19
1. D
2. A
3. A
4. A
5. B
PROBLE M 20
1. D
2. D
3. C
4. A
5. C