Reference no: EM132729281

Karen Company, owner of a trading company, engaged your services as auditor. There is a discrepancy between the company's income and the sales volume. The owner suspects that the staff is committing theft. You are to determine whether or not this is true.

Your investigations revealed the following.

1. Physical inventory, taken December 31, 2018 under your observation showed that cost was P265,000 and net realizable value (NRV), P244,000. The inventory on January 1, 2018 showed cost of P390,000 and net realizable value of P375,000. It is the corporation's practice to value inventory at "lower of cost or NRV." Any loss between cost and NRV is included in " Other expenses. "
2. The average gross profit rate was 40% of net sales. 
3. The accounts receivable as of January 1, 2018 were P135,000. During 2018, accounts receivable written off during the year amounted to P10,000. Accounts receivable as of December 31, 2018 were P375,000. 
4. Outstanding purchase invoices amounted to P300,000 at the end of 2018. At the beginning of 2018 they were P375,000. 
5. Receipts from customers during 2018 amounted to P3,000,000. 
6. Disbursements to merchandise creditors amounted to P2,000,000.

Based on the above and the result of your audit, determine the following:

Problem 1: The total sales in 2018

Problem 2: The total purchases in 2018

Problem 3: The amount of inventory shortage as of December 31, 2018