Activity#2 X ACTIVITY#2 X + W Document1 - Microsoft Word (... X > C L docs.google.com/forms/d/e/1FAlpOLSd6zAlKXF4garvJzEOWL8wugAhKkfLA-CAMiSpxkkQOXNVPtg/formResponse PROBLEM#1 100% + You are engaged in the regular annual examination of the accounts and records of Francis Manufacturing Co. for the year ended December 31, 2016. To reduce the workload at year end, the company, upon your recommendation, took its annual physical inventory on November 30, 2016. You observed the taking of the inventory and made tests of the inventory count and the inventory records. The company's inventory account, which includes raw materials and work-in-process is on perpetual basis. Inventories are valued at cost, first-in, first-out method. There is no finished goods inventory. The company's physical inventory revealed that the book inventory of P3,391,920 was understated by P168,000. To avoid delay in completing its monthly financial statements, the company decided not to adjust the book inventory until year-end except for obsolete inventory items. Your examination disclosed the following information regarding the November 30 inventory: a. Pricing tests showed that the physical inventory was overstated by P123,200. b. An understatement of the physical inventory by P8,400 due to errors in footings and extensions. c. Direct labor included in the inventory amounted to P560,000. Overhead was included at the rate of P200% of direct labor. You have ascertained that the amount of direct labor was correct and that the overhead rate was proper. d. The physical inventory included obsolete materials with a total cost of P14,000. During December, the obsolete materials were written off by a charge to cost of sales. Your audit also disclosed the following information about the December 31 inventory: a. Total debits to the following accounts during December were: Cost of sales P3,841,600 Direct labor 677,600 Purchases 1,383,200 b. The cost of sales of P3,841,600 included direct labor of P772,800. W P X A G) 10:01 PM