G COL] rsehe l'O. CO In On the evening of December 31, 2018. there were two cars on the Crank Company siding: (a) Car Ar38162 was unloaded on January 2, 2019, and received on receiving report No. 1063. The freight was paid by the vendor. (b) Car BAE74123 was loaded and sealed on December 31, 2018, and was switched off the company's siding on January 2, 2019. The sales price was P127,000 and the freight was paid by the customer. This order was sold on sales invoice No. 968. Temporarily stranded at December 31, 2018, on a railroad siding were two cars of chemicals en route to the Soft and White Paper Co. They were sold on sales invoice No. 966 and the terms were FOB destination. En route to the Crank Company on December 31, 2018, was a truckload of material that was received on receiving report no. 1064. The material was shipped FOB destination and freight of P750 was paid by the Crank Company. However, the freight was deducted from the purchase price of P9.750. Included in the physical inventory were chemicals exposed to rain while in transit and deemed unsalable. Their invoice cost was P12,500 and freight charges of P3,500 had been paid on the chemicals. Instructions: a. Compute the adjustments that should be made to the client's physical inventory at December 31, 2018. b. Prepare the auditor's worksheet adjusting entries that are required as of December 31. 2018. Problem 11 - Sales and Purchases Cutoff Tests You have been engaged for the audit of the Crank Company for the year ended December 31, 2018. The Crank Company is engaged in the wholesale chemical business and makes all sales at 25% over cost. Following are portions of the client's sales and purchases accounts for the calendar year 2017. SALES BALANCE FORWARD Date Amount 12/31 Closing entry P 6,998,600 P 6,583,200 *Sl#965 51.950 SI#966 192.700 SI#967 13,020 SI#969 58,410 SI#970 79,220 SI#971 20,100 P 6,998,600 P 6,998,600 " PURCHASES BALANCE FORWARD P 3,603,000 12/31 Closing entry P 3,853,460 ~ RR#1059 31,000 RR#1061 89,650 RR#1062 48,610 RR#1063 81,200 P 3,853,460 P 3,853,460 *Sl sales invoice ~RR, receiving report You observed the physical inventory of goods in the warehouse on December 31, 2018 and were satisfied that it was properly taken. When performing a sales and purchase cutoff test, you found that at December 31, 2018, the last receiving report that had been used was No. 1063 and that no shipments have been made on any sales invoices with numbers largerthan No. 968. You also obtained the following additional information: 1. Included in the warehouse physical inventory at December 31, 2018, were chemicals that had been purchased and received on receiving report No. 1060 but for which an invoice was not received until 2019. Cost was P21,830. 2. In the warehouse at December 31, 2018, were goods that had been sold and paid for by the customer but which were not shipped out until 2019. They were all sold on sales invoice No. 965 and were not inventoried