LA SALLE UNIVERSITY

College of Business and Accountancy

Second Semester 2024-2025

AUDITING AND ASSURANCE: CONCEPTS AND APPLICATIONS

Homework Problems on Audit of Inventories
March 3, 2025

Problem 1
The cost of goods sold section of the income statement prepared by your client, Riquelen Wilmae
Merchandising, for the year ended December 31 appears as follows:

Inventory, January 1 ₱ 80,000

Purchases 1,600,000
Cost of goods available for sale 1,680,000
Inventory, December 31 100,000
Cost of goods sold ₱1,580,000

Although the books have been closed, your working paper trial balance is prepared showing all accounts
with activity during the year. This is the first time your firm has made an examination. The January 1 and
December 31 inventories appearing above were determined by physical count of the goods on hand on
those dates and no reconciling items were considered. All purchases are FOB shipping point.

In the course of your examination of the inventory cutoff, both at the beginning and end of the year, you
discovered the following facts:
Beginning of the Year
1.)​ Invoices totalling ₱25,000 were entered in the voucher register in January, but the goods were
received during December.
2.)​ December invoices totalling ₱13,200 were entered in the voucher register in December, but
goods were not received until January.
End of the Year
3.)​ Sales of ₱43,000 (cost of ₱12,900) were made on account on December 31 and goods delivered
at that time, but all entries relating to the sales were made on January 2.
4.)​ Invoices totalling ₱15,000 were entered in the voucher register in January, but the goods were
received in December.
5.)​ December invoices totalling ₱18,000 were entered in the voucher register in December, but the
goods were not received until January.
6.)​ Invoices totalling ₱12,000 were entered in the voucher register in January, and the goods were
received in January, but the invoices were dated December.

REQUIRED:
Based on the preceding information, answer the following:
A.​ Prepare your proposed adjusting journal entries.
B.​ Determine the net working paper adjustment that should be made for each of the following
accounts:
1.​ Retained earnings
a.​ ₱13,200 credit​ c. ₱25,000 debit
b.​ ₱11,800 debit​ ​ d. ₱38,200 debit

2.​ Purchases
a.​ ₱27,000 debit​ ​ c. ₱25,000 credit
b.​ ₱28,000 debit​ ​ d. ₱2,000 debit
3.​ Beginning inventory
a.​ ₱25,000 credit​ c. ₱13,200 debit
b.​ ₱38,200 debit​ ​ d. ₱11,800 debit

4.​ Accounts receivable

a.​ ₱43,000 debit​ ​ c. ₱30,100 debit
b.​ ₱43,000 credit​ d. No adjustment

5.​ Sales
a.​ ₱43,000 debit​ ​ c. ₱30,100 credit
b.​ ₱43,000 credit​ d. No adjustment

Problem 2
The Madeleine Albert Company is on a calendar year basis. The following data were found during your
audit:
a.​ Goods in transit shipped FOB destination by a supplier in the amount of P100,000, had been
excluded from the inventory and further testing revealed that the purchase had been recorded.
b.​ Goods costing P50,000 had been received, included in inventory and recorded as a purchase.
However, upon your inspection the goods were found to be defective and would be immediately
returned.
c.​ Materials costing P250,000 and billed on December 30 @ a selling price of P320,000, had been
segregated in the warehouse for shipment to a customer. The materials had been excluded from
inventory as a signed purchase order had been received from the customer. Terms, FOB destination.
d.​ Goods costing P70,000 was out on consignment with Sentinel Company. Since the monthly
statement from Sentinel Company listed those materials as on hand, the items had been excluded
from the final inventory and invoiced on December 31 @ P80,000.
e.​ The sale of P150,000 worth of materials and costing P120,000 had been shipped FOB point of
shipment on December 31. However, this inventory was found to be included in the final inventory.
The sale was properly recorded in 2023.
f.​ Goods costing P100,000 and selling for P140,000 had been segregated, but not shipped @
December 31, and were not included in the inventory. A review of the customer’s purchase order set
forth terms as FOB destination. The sale had not been recorded.
g.​ Your client has an invoice from a supplier, terms FOB shipping point but the goods had not arrived as
yet. However, these materials costing P170,000 had been included in the inventory count, but no
entry had been made for their purchase.
h.​ Merchandise costing P200,000 had been recorded as a purchase but not included as inventory.
Terms of sale are FOB shipping point according to the supplier’s invoice which had arrived @
December 31.

Further inspection of the client’s records revealed the following December 31, 2023 balances: Inventory,
P1,100,000; Accounts Receivable, P580,000; Accounts payable, P690,000; Net sales, P5,050,000; Net
purchases, P2,300,000; Net Income, P510,000.

REQUIRED:
Based on the above and the results of your audit, answer the following:
A.​ Prepare your proposed adjusting journal entries.
B.​ Determine the adjusted balances of following as of December 31, 2023:
1.​ Inventory
a.​ P1,230,000​​ ​ c. P1,550,000
b.​ P 1,650,000​​ ​ d. P1,480,000

2.​ Accounts Payable

 a.​ P710,000​ ​ ​ c. P810,000
b.​ P540,000​ ​ ​ d. P760,000

3.​ Net Sales

a.​ P4550, 000​​ ​ c. P4,730,000
b.​ P4,650, 000​​ ​ d. P4,970,000

4.​ Net Purchases

a.​ P2,370,000​​ ​ c. P2,150,000
b.​ P2,420,000​​ ​ d. P2,320,000

5.​ Net Income

a.​ P220,000​ ​ ​ c. P540,000
b.​ P290,000​ ​ ​ d. P550,000

Problem 3
You were engaged to perform an audit of the accounts of the Nicole Mae Corporation for the year ended
December 31, 2023, and you observed the taking of the physical inventory of the company on December
30, 2023. Only merchandise shipped by the company to customers up to and including December 30,
2023 have been eliminated from inventory. The inventory as determined by physical inventory count has
been recorded on the books by the company’s controller. No perpetual inventory records are maintained.
All sales are made on an FOB shipping point basis. You are to assume that all purchase invoices have
been correctly recorded. The inventory was recorded through the cost of sales method.

The following lists of sales invoices are entered in the sales books for the month of December 2023 and
January 2024, respectively.
DECEMBER 2013
Sales Sales
Invoice invoice
amount date Cost Date shipped
a)​ ₱150,000 Dec. 21 ₱100,000 Dec. 31, 2023
b)​ 100,000 Dec. 31 40,000 Nov. 03, 2023
c)​ 50,000 Dec. 29 30,000 Dec. 30, 2023
d)​ 200,000 Dec. 31 120,000 Jan. 03, 2024
e)​ 500,000 Dec. 30 280,000 Dec. 29, 2023
(shipped to
consignee)
JANUARY 2024
f)​ ₱300,000 Dec. 31 ₱200,000 Dec. 30, 2023
g)​ 200,000 Jan. 02 115,000 Jan. 02, 2024
h)​ 600,000 Jan. 03 475,000 Dec. 31, 2023

REQUIRED:
Based on the above and the results of your audit, answer the following:
A.​ Prepare your proposed adjusting journal entries.
B.​ Determine the following:
1.​ Sales for the year ended December 31, 2023 is misstated by
a.​ ₱100,000 over​​ ​ c. ₱100,000 under
b.​ ₱200,000 over​​ ​ d. ₱200,000 under

2.​ Profit for the year ended December 31, 2023 is misstated by
a.​ ₱95,000 over​ ​ ​ c. ₱25,000 under
 b.​ ₱195,000 over​​ ​ d. ₱380,000 under

3.​ Inventory as of December 31, 2023 is misstated by

a.​ ₱180,000 under​ ​ ​ c. ₱295,000 over
b.​ ₱175,000 over​​ ​ d. ₱455,000 over

4.​ Working capital as of December 31, 2023 is misstated by

a.​ ₱95,000 over​ ​ ​ c. ₱25,000 under
b.​ ₱195,000 over​​ ​ d. ₱380,000 under

Problem 4
During your audit of the records of the Andrea Bea Corporation for the year ended December 31, 2023,
the following facts were disclosed:
Raw materials, 1/1/2023 ₱720,000
Raw materials purchases 5,232,800
Direct labor 4,900,000
Manufacturing overhead, applied (150% of direct labor) 7,350,000
Finished goods inventory, 1/1/2023 1,240,000
Selling expenses 8,112,800
Administrative expenses 7,377,200

Your examination disclosed the following additional information:

a)​ Purchases of raw materials
Unit
Month Units Price Amount
January-February 55,000 ₱17.76 ₱976,800
March-April 45,000 20.00 900,000
May-June 25,000 19.60 490,000
July-August 35,000 20.00 700,000
September-October 45,000 20.40 918,000
November-December 60,000 20.80 1,248,000
265,000 ₱5,232,800
b)​ Data with respect to quantities are as follows:
Units
Explanation 1/1/23 12/31/23
Raw materials 35,000 ?
Work in process (80% completed) - 25,000
Finished goods 15,000 40,000
Sales, 200,000 units

c)​ Raw materials are issued at the beginning of the manufacturing process. During the year, no returns,
spoilage, or wastage occurred. Each unit of finished goods contains one unit of raw materials.
d)​ Inventories are stated at cost as follows:
●​ Raw materials – according to the FIFO method
●​ Direct labor – at an average rate determined by correlating total direct labor cost with effective
production during the period
●​ Manufacturing overhead – at an applied rate of 150% of direct labor cost

QUESTIONS:
Based on the above and the result of your audit, answer the following:
1.​ The raw materials inventory as of December 31, 2023 is
a.​ ₱992,000​ ​ c. ₱936,000
b.​ ₱888,000​ ​ d. ₱1,040,000

2.​ The work in process inventory as of December 31, 2023 is

 a.​ ₱1,496,000​ ​ c. ₱1,746,000
b.​ ₱1,514,000​ ​ d. ₱1,776,000

3.​ The finished goods inventory as of December 31, 2023 is

a.​ ₱2,793,600​ ​ c. ₱3,553,130
b.​ ₱3,334,000​ ​ d. ₱2,812,000

4.​ The cost of goods sold for the year ended December 31, 2023 is
a.​ 16,897,000​ ​ c. ₱14,077,000
b.​ P14,161,400​ ​ d. ₱13,911,400

Problem 5 CRC-ACE 1st Preboard May 2023 Batch

You were engaged as the auditor of KATE Faith Company. Their ending inventory based on their
inventory count is P150,000. You have gathered the following information related to their inventory:

Cost Retail
Beginning inventory 35,000 72,500
Purchases 256,500 400,000
Freight in 42,000
Purchase returns 18,500 23,000
Purchase discounts 20,000
Sales 290,000
Sales returns 13,000
Sales discounts 15,000
Net markup 40,000
Net markdown 28,000
Employee discounts 10,000
Departmental transfer in 23,000 38,500
Note: Percentages are to be rounded off to two whole numbers (i.e. xx%)

Requirements:
5.​ What is the cost ratio of the entity using the conservative approach?
a.​ 60% ​ ​ b. 62% ​​ c. 65% ​​ d. 68%

6.​ What is the cost ratio of the entity using the FIFO approach?
a.​ 60% ​ ​ b. 62% ​​ c. 65% ​​ d. 68%

7.​ What is the estimated ending inventory using the average approach?
a.​ P140,400 ​ b. P120,600 ​ c. P130,650 ​ d. P136,680

8.​ What is the inventory shortage using the conservative approach?

a.​ P9,600 ​​ b. P29,400 ​ c. P19,350 ​ d. P13,320

9.​ What is the inventory shortage using the FIFO approach?

a.​ P9,600 ​​ b. P29,400 ​ c. P19,350 ​ d. P13,320
Problem 6 CRC-ACE 1st Preboard May 2023 Batch
You were engaged to conduct an audit of the financial statements of Mina Joesefel Inc. as of and for the
period ended December 31, 2022. The following unadjusted balances were provided as follows:

Inventory, December 31, 2022 866,500

Purchases 11,345,500
Sales (all on credit) 16,750,250
Accounts receivable 1,399,400
Accounts payable 952,000

Additional information:
A.​ The inventory balance was determined through an inventory count conducted on December 31,
2022 on inventories on hand.
B.​ Inventory purchased on December 29, 2022 costing P56,000 was still in transit as of December
31, 2022. The purchase was already recorded. The merchandise arrived on January 5, 2023.
Term is FOB shipping point.
C.​ Sales for P143,000 for merchandise costing P89,000 was shipped on December 28, 2022. The
sales invoice is dated and was recorded on December 30, 2022. Term is FOB destination, and
the merchandise was still in transit as of the date of count.
D.​ Inventory costing P150,000 was consigned to Kusina Corporation on December 26, 2022 and
was immediately recorded as sales upon transfer. The selling price of the inventory is P248,000.
The inventories were not yet sold as of December 31, 2022.
E.​ Goods in transit on December 31, 2022 purchased from a supplier on December 30, 2022 was
not yet recorded as purchase since the goods have not yet arrived. The cost of the inventory is
P99,000; term is FOB shipping point.
F.​ Goods consigned to Michael Angelo was recorded as purchase. The cost of the goods is P74,000
and are to be sold at P102,000. The goods are not yet sold as of December 31, 2022 and are
included in the inventory count.
G.​ Inventory costing P50,000, sold for P84,000, were set aside awaiting shipment. The term is FOB
shipping point, and the sale was already recorded; however, the inventory was still included in the
count.
H.​ Purchases and sales are all on account.
I.​ The beginning balances of Cash, Accounts Receivable, Inventory, and Accounts Payable are
P546,000, P1,291,400, P798,500, and P998,600, respectively.
J.​ Other cash receipts include a loan from a bank for P200,000; and other cash disbursements
include a purchase of equipment for P5,000,000, and expenses paid in cash totalling to
P297,480.
K.​ From your cash count, you have determined the amount of bills and coins at P35,000, and the
bank statement shows a cash balance (adjusted) of P423,000.

REQUIRED:
Based on the above and the results of your audit, answer the following:
A.​ Prepare your proposed adjusting journal entries.
B.​ Determine the following:

1.​ What is the correct balance of inventory as of December 31, 2022?

a.​ P1,186,500
b.​ P1,087,500
 c.​ P1,236,500
d.​ P1,097,500

2.​ What is the adjusted amount of purchases for the period?

a.​ P11,444,500
b.​ P11,271,500
c.​ P11,345,500
d.​ P11,370,500

3.​ What is the gross profit for the period?

a.​ P5,193,750
b.​ P5,426,750
c.​ P5,292,750
d.​ P5,218,750

4.​ How much is the cash shortage?

a.​ P88,000
b.​ P458,000
c.​ P698,670
d.​ P240,670