PROBLEM 1

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

1 700 150 800 800 – 150 = 650 650

2 475 205 950 950 – 205 = 745 475

3 255 50 300 300 – 50 = 250 250

4 450 260 1,000 1,000 – 260 = 740 450

*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

Cost NRV LCRNV

Skis 2,200,000 2,500,000 2,200,000
Boots 1,700,000 1,500,000 1,500,000
Ski Equipment 700,000 800,000 700,000
Ski Apparel 400,000 500,000 400,000
Inventory at year end 5,000,000 5,300,000 4,800,000

Direct Method
Ending Inventory 4,800,000
 Income Summary 4,800,000
Allowance Method
Ending Inventory 5,000,000
Income Summary 5,000,000

Loss on inventory write down 200,000

Allowance for inventory write 200,000

PROBLEM 4
Calculate the value of the inventory under the following approaches:
A. The LCNRV is applied to the individual inventory item

(a) (b) (c)

Units Cost NRV
Category 1
25,000 105 115
A
B 20,000 85 80
Category 2
C 40,000 50 40
D 30,000 65 60
(a x b) (a x b)
Total Cost NRV LCRNV
Category 1
2,625,000 2,875,000 2,625,000
A
B 1,700,000 1,600,000 1,600,000
Subtotal 4,325,000 4,475,000
Category 2
2,000,000 1,600,000
C 1,600,000
D 1,950,000 1,800,000 1,800,000
Subtotal 3,950,000 3,400,000
Grand Total 8,275,000 7,875,000 7,625,000
LCNRV – by individual item 7,625,000
A. The LCRNV is applied to the inventory category
Total Cost NRV Lower

Category 1 4,325,000 4,475,000 4,325,000

Category 2 3,950,000 3,400,000 3,400,000
7,725,000
LCRNV - by 7,725,000
category

B. The LCRNV is applied to the inventory as a whole

Total Cost 8,275,000

 Total NRV 7,875,000
LCRNV - by total 7,875,000

PROBLEM 5

1. Prepare a schedule of cost of goods sold for the current year.

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

Inventory writedown 300,000

Inventory – January 1, at cost 1,200,000
Net Purchases (9,400,000 – 400,000) 9,000,000
Goods Available for Sale 10,200,000
Inventory – December 31, at cost 3,900,000
Cost of goods sold before inventory writedown 6,300,000
Loss on inventory writedown for current year 300,000
Cost of goods sold after inventory writedown 6,600,000
Direct Method
Goods available for sale 10,200,000
Inventory – December 31 at NRV (3,600,000)
Cost of goods sold 6,600,000

2. Prepare journal entries to record the ending inventory and any inventory
write-down.
Inventory – December 31 3,90000
Income Summary 3,900,000

Allowance for inventory writedown (400k-300k) 100,000

Gain on reversal of inventory writedown 100,000

PROBLEM 6

Prepare a journal entry under each of the following independent assumptions:

A. The market price on December 31, 2022 is P210.
No adjustment is necessary because the market price is higher than the agreed price. Any gain on
purchase commitment is not recognized initially.
B. It is expected that the market price will decline to P170 in early January 2023.
No adjustment is necessary because the market price has not declined as of December 31, 2022. The
market decline is only a possible loss.
C. The market price on December 31, 2022 is P170.
Loss on purchase commitment (10,000 x 30) 300,000
 Estimated liability on purchase commitment 300,000
D. 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 P150.
December 31, 2022
Loss on purchase commitments (10,000 x 30) 300,000
Estimated liability on purchase commitments 300,000

Actual Delivery: January 31, 2023

Purchases (10,000 x 150) 1,500,000
Loss on purchase commitment 200,000
Estimated liability on Purchase Commitment 300,000
Accounts Payable 2,000,000

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.

Dec 31, 2020

Loss on purchase commitments 300,000
Estimated liability for purchase commitments 300,000

Actual Delivery: Jan 31, 2021

Purchases (10,000 X 200) 2,000,000

Estimated liability 300,000
Accounts Payable 2,000,000
Gain on purchase commitment 300,000

Actual Delivery: Jan 31, 2021 (market price P190)

Purchases (10,000 X 190) 1,900,000

Estimated liability 300,000
Accounts Payable 2,000,000

Gain on purchase commitment 200,000

Dec 31, 2022
Loss on purchase commitments 300,000
Estimated liability for purchase commitments 300,000

Actual Delivery: Jan 31, 2023

Purchases (10,000 X 200) 2,000,000

Estimated liability on purchase commitment 300,000
Accounts Payable 2,000,000
Gain on purchase commitment 300,000

Actual Delivery: Jan 31, 2023 (market price P210)

 Purchases (10,000 X 210) 2,000,000
Estimated liability on purchase commitment 300,000
Accounts Payable 2,000,000
Loss on purchase commitment 300,000
Note : However, when the current market price is higher than the agreed price, both Purchases and
Accounts Payable are based on the agreed price.
Note : However, when the current market price is higher than the agreed price,both Purchases and
Accounts Payable are based on the agreed price.

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

Estimated liability on purchase commitment 500,000

Accounts payable (55 x 100,000) 5,500,000
Gain on purchase commitment 400,000

• Agreed price 11/15/22  55 pesos

• price 12/31/22  50 pesos 5 pesos decrease x 100,000 gallons = 500,000 pesos
• price 03/31/23  54 pesos

4 pesos increase x 100,000 gallons = 400,000 pesos entire gain is recognized because it did not exceed 500,000
pesos

PROBLEM 8

Harris Company provided the following data at year-end:

Historical Cost 1,200,000
Estimated Selling Price 1,300,000
Estimated completion and Selling Cost 150,000
Replacement Cost 1,100,000
What amount should be reported as inventory at year end?
 A. 1,100,000 B. 1,500,000 C. 1,200,000 D. 1,300,000
Solution:

Historical cost 1,200,000

Net realizable value (1,300,000-150,000) 1,150,000
LCNRV 1,150,000

PROBLEM 9

What amount should be reported as inventory at year end?

A. 1,400,000 B. 1,700,000 C. 1,800,000 D. 1,900,000
Solution:
Historical cost 2,000,000 Net realizable value 1,800,000
LCNRV 1,800,000
Historical cost 2,000,000
Net realizable value 1,800,000
LCNRV 1,800,000

PROBLEM 1O

What amount should be reported as chocolate inventory at year-end?

A. 5,600,000 B. 5,200,000 C. 4,800,000 D. 4,000,000

Solution:
Estimated Sales Price 8,000,000
Cost to complete – processing cost (2,400,000)
Net Realizable Value 5,600,000

FIFO cost 5,200,000

Net realizable value 5,600,000
LCNRV 5,200,000
PROBLEM 11
At year end, the manufacture of inventory has been completed but no selling cost has yet been incurred.
1. Under LCNRV by individual item, the inventory shall be measured at what amount?
A. 3,700,000 B. 3,200,000 C. 3,800,000 D.
3,300,000

2. Under LCRNV by total, the inventory shall be measured at what amount?

A. 3,300,000 B.3,700,000 C. 3,800,000 D.
3,200,000

PROBLEM 12
What is the amount reported as inventory?

A. 720,000 B. 728,000 C. 676,000 D. 694,000

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

3. What amount should be recorded as purchases on February 15,2023?

A. 3,000,000 B. 3,100,000 C. 2,700,000 D.
3,500,000

4. What amount should be recognized as accounts payable on February 15, 2023?

A. 2,700,000 B. 3,100,000 C. 3,500,000 D. 3,000,000

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