INVENTORIES

Easy:

1. Reporting inventory at the lower of cost and net realizable value is departure
from

a. Full disclosure
b. Conservatism
c. Historical cost
d. Consistency

2. On June 1, 2013, Jogel Corp. sold merchandise with a list price of P200,000 to
Rey on account. Jogel allowed trade discounts of 30%, 20% and 10%. Credit
terms were 2/15, n/40 and the sale was made FOB shipping point. Jogel prepaid
P4,000 of delivery costs for Rey as an accommodation. On June 3, 2013, Jogel
received from Rey returned merchandise with an invoice price of P50,000 due
to minor defects. On June 14, 2013, Rey settled its account in full to Jogel. How
much net cash remittance did Jogel receive?

a. 49,784
b. 53,784
c. 74,088
d. 60,760

3. The floor to be used in applying the lower-of-cost-or-market method to inventory

is determined as the

a. net realizable value less normal profit margin

b. replacement cost
c. net realizable value
d. selling price less costs of completion and disposal

4. On December 15, 2012, Garry purchased goods costing P100,000. The terms
were F.O.B. shipping point. Costs incurred by the entity in connection with the
purchase and delivery of goods were normal freight charge of P3,000, handling
cost of P2,000, insurance on shipment of P500 and abnormal freight charge for
express shipping of P1,200. The goods were received on December 17, 2012.
What is the amount that the entity should charge to current period expense?

a. 0
b. 3,700
c. 1,700
d. 1,200

5. The proper cost method for inventories that are not ordinarily interchangeable
and segregated for specific projects is the

a. Last-In, First-Out (LIFO)

b. First-In, First-Out (FIFO)
 c. Specific identification
d. Weighted average

6. For a merchandising company, inventory cost shall exclude

a. Purchase price
b. Trade discounts and rebates
c. Transportation and handling costs
d. Import duties and other taxes

7. The following information is available for Bart Company for 2017:

Disbursements for purchases P580,000

Increase in trade accounts payable 50,000
Decrease in merchandise inventory 20,000

Cost of goods sold for 2017 was

a. 650,000
b. 550,000
c. 610,000
d. 510,000

SOLUTION:

The basic cost of goods sold formula is Beg. inv. + Net Purchases End. inv. =
CGS To compute cost of goods sold from the information given, cash paid for
purchases must be adjusted for increases (decreases) in both accounts payable
and merchandise inventory. Cash payments for purchases during 2017 were
P580,000. In addition, accounts payable increased by P50,000, indicating that
total purchases exceeded cash payments for purchases by P50,000.
Merchandise inventory decreased by P20,000, which means beginning
inventory exceeded ending inventory by P20,000. This decrease in inventory
must be added to cash payments for purchases to compute the cost of goods
sold of P650,000.

Cash paid for purchases P580,000

+ Increase in AP 50,000
+ Decrease in inv 20,000
Cost of goods sold P650,000

8. PAS 2 allows which of the following to be capitalised into the cost of inventory?

a. normal wastage costs

b. storage costs for finished goods
c. selling costs
d. administrative overheads
9. During periods of rising prices, a perpetual inventory system would result in the
same peso amount of ending inventory as a periodic inventory system under
which of the following inventory cost flow methods?

a. FIFO (No); LIFO (Yes)

b. FIFO (Yes); LIFO (No)
c. FIFO (No); LIFO (No)
d. FIFO (Yes); LIFO (Yes)

10.The cost of inventories that are not ordinarily interchangeable and goods or
services produced and segregated for specific projects shall be measured using

a. FIFO
b. LIFO
c. Specific identification
d. Average method

11.How should import duties be dealt with when valuing inventories at the lower
of cost and net realizable value (NRV) according to PAS 2 Inventories?

a. Added to cost
b. Deducted in arriving at NRV
c. Ignored
d. Deducted from cost

12.Freight and other handling charges incurred in the transfer of goods from
consignor to consignee are

a. Inventoriable by the consignor

b. Expense on the part of the consignor
c. Expense on the part of the consignee
d. Inventoriable by the consignee

13.A markup of 40% on cost is equivalent to what markup on selling price?

a. 71%
b. 60%
c. 40%
d. 29%

SOLUTION:

(.40/(1+.40) = 29%

14.How should trade discounts be dealt with when valuing inventories at the lower
of cost and net realizable value (NRV) according to PAS 2 Inventories?

a. Ignored
b. Added to cost
c. Deducted in arriving at NRV
 d. Deducted from cost

15.On December 28, 2013, Wei Company purchased goods costing P500,000. The
terms were F.O.B destination. Some of the costs incurred in connection with the
sale and delivery of the goods were packaging for shipment P10,000, shipping
P15,000, and special handling charges P25,000. These goods were received on
December 31, 2013. On December 31, 2013, what total cost for these goods
should be included in inventory?

a. 520,000
b. 545,000
c. 535,000
d. 500,000

16.Which costing method results in inventory being stated at the most recent
acquisition costs?

a. Weighted Average
b. Last-In, First Out (LIFO)
c. First-In First-Out (FIFO)
d. Specific Identification

17.Duo Ltd uses a periodic inventory system and rounds the average unit cost to
the nearest peso. The following data relates to Duo Ltd for the year ended 30
June 2013:

Opening inventory 15 units x average cost of P25 each

January purchases 10 units x P24 each
July purchases 25 units x P26 each
October purchases 20 units x P24 each
Ending inventory 20 units

The cost of ending inventory using the weighted average cost method (rounded
to the nearest peso) is:

a. 499
b. 465
c. 483
d. 459

18.Which is not a required note disclosure for inventories under PAS 2?

a. The suggested selling price of inventories in the form of goods stated in the
balance sheet
b. The events or circumstances that led to reversal of a write down of
inventories
c. The carrying amount of inventories pledged as security for liabilities
d. The accounting policy adopted in measuring inventories, including the cost
formula used
19.Freight charges on goods purchased are accounted for as

a. Manufacturing cost
b. Variable cost
c. Period cost
d. Product cost

20.Which of the following pairs of inventory terms would not usually go together?

a. Gross method and Purchase Discount Taken account

b. Periodic inventory system and Freight-In account
c. Net method and Purchase Discount Taken account
d. Perpetual inventory system and Cost of Goods Sold account

21.The following information pertains to Nando Company, seller of recliners for the
year ended December 31,2013

Units Unit Cost Total Cost

January 1 Inventory on 200 3,000 P600,000
hand
April 3 Purchase 300 3,200 960,000
July 1 Purchase 300 3,300 990,000
October 1 Purchase 200 3,400 680,000
December Purchase 200 3,500 700,000
26
Total 1,200 P3,930,000

The company sold 400 recliners on June 25 and 500 on December 10. What is
the weighted average cost of the inventory on December 1, 2013?

a. 982,500
b. 1,310,000
c. 920,000
d. 990,000

22.The following information is available for Tony Company for 2013:

Freight-in 30,000
Purchase returns 75,000
Selling expenses 150,000
Ending inventory 260,000

The cost of goods sold is equal to 400% of selling expenses. What is the cost of
goods available for sale?

a. 815,000
b. 890,000
c. 860,000
d. 600,000
 SOLUTION:

P260,000 + (4 × P150,000) = P860,000

23.The following information relate to an item of raw materials of Bem Company as

of June 30, 2013.

Historical cost of raw materials 500,000

Replacement cost of raw materials A as at 30 June 2013 400,000
Conversion costs to finished product A (labor, P200,000 and
production overhead, P100,000

What is the value of the closing raw material A if the finished product A to be
produced is expected to fetch P650,000?

a. 400,000
b. 500,000
c. 450,000
d. 600,000

24.'F.O.B. destination' means that

a. The freight charges are actually to be paid by the buyer

b. The ownership of goods is transferred upon shipment of the goods by the
seller and the buyer is the owner of the goods while in transit
c. The ownership of goods is transferred upon receipt of the goods by the
buyer and the seller is the owner of the goods while in transit
d. The freight charges are actually to be paid by the seller

25.The inventory on hand at December 31, 2013 for Frances Company is valued at
a cost of P947,800. The following items were not included in this inventory
amount:

 Purchased goods in transit, shipped FOB destination. Invoice price P32,000,

which includes freight charges of P1,600.
 Goods held on consignment by Frances at a sales price of P28,000, including
sales commission of 20% of the sales price.
 Goods sold to Matt Company, under terms FOB destination. Invoiced for
P24,400 which includes P1,000 freight charges to deliver the goods. The
goods are in transit.
 Purchased goods in transit, terms FOB shipping point. Invoice price
P48,000. Freight costs, P3,000.
 Goods out on consignment to Diane Company, sales price, P36,400. Shipping
cost of P2,000.

Mark up on cost for all sales is 30%. What is the correct cost of inventory to be
reported in Frances’s financial statements?

a. 1,046,800
b. 1,041,800
 c. 1,078,800
d. 1,022,400

26.Ryan Company had a gross profit of P360,000, total purchases of P420,000, and
an ending inventory of P240,000 in its first year of operations as a retailer.
Ryan’s sales in its first year must have been

a. 540,000
b. 600,000
c. 660,000
d. 180,000

SOLUTION:

P360,000 + (P420,000 - P240,000) = P540,000

27.If the specific identification of costing inventory is impracticable under the

circumstances, the cost of inventories is assigned by using which set of cost
flow assumptions?

a. Last-In, First-Out (LIFO) or Weighted average

b. First-In, First-Out (FIFO) or Weighted average
c. Last-In, Last-Out (LILO) or Last-In, First-Out (LIFO)
d. First-In, First-Out (FIFO) or Last-In, First-Out (LIFO)

28.When a portion of inventories has been pledged as security on a loan

a. The value of the portion pledged should be subtracted from the debt
b. An equal amount of retained earnings should be appropriated
c. The cost of the pledged inventory should be transferred from current to
noncurrent asset
d. The fact should be disclosed but the amount of current assets should not be
affected

29.Which of the following items should be included in a companys inventory at the

balance sheet date?

a. Goods that are customarily manufactured

b. Goods in transit which were sold FOB shipping point.
c. Goods in transit which were purchased FOB destination
d. Goods received from another company on consignment

30.Transactions for the month of June were:

Purchases Sales
June (balance) 800 @ P3.20 June 2 600 @ P5.50
1
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
 22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in pesos, the ending
inventory on a FIFO basis is

a. 4,110
b. 4,160
c. 4,290
d. 4,470

SOLUTION:

(500 × P3.5) + (800 × P3.4) = P4,470

31.Commodity broker traders are able to measure their inventories at:

a. current cost
b. fair value less costs of disposal
c. replacement cost
d. nominal cost

32.Theoretically, freight and warehousing costs incurred in the transfer of

consigned goods form the consignor to the consignee should be considered

a. Inventoriable by the consignee

b. An expense by the consignor
c. An expense by the consignee
d. Inventoriable by the consignor

33.Jose Corporation uses the perpetual inventory method. On March 1, it

purchased P30,000 of inventory, terms 2/10, n/30. On March 3, Jose returned
goods that cost P3,000. On March 9, Jose paid the supplier. On March 9, Jose
should credit

a. purchase discounts for P600

b. inventory for P600
c. purchase discounts for P540
d. inventory for P540

SOLUTION:

[(P30,000 – P3,000) × .02] = P540

34.Patrick Corporation sells its product, a rare metal, in a controlled market with a
quoted price applicable to all quantities. The total cost of 5,000 pounds of the
metal now held in inventory is P150,000. The total selling price is P350,000,
and estimated costs of disposal are P5,000. At what amount should the
inventory of 5,000 pounds be reported in the balance sheet?
 a. 145,000
b. 150,000
c. 350,000
d. 345,000

SOLUTION:

P350,000 - P5,000 = P345,000

35.Which of the following accounts is not reported in inventory?

a. Supplies
b. Raw materials
c. Finished goods
d. Equipment

36.Mike Corporation uses the FIFO method for internal reporting purposes and
LIFO for external reporting purposes. The balance in the LIFO Reserve account
at the end of 2013 was P80,000. The balance in the same account at the end of
2014 is P120,000. Mike’s Cost of Goods Sold account has a balance of P600,000
from sales transactions recorded during the year. What amount should Mike
report as Cost of Goods Sold in the 2014 income statement?

a. 560,000
b. 720,000
c. 600,000
d. 640,000

SOLUTION:

P600,000 + (P120,000 – P80,000) = P640,000

37.Eagle Company has produces a certain product. The following costs have been
incrred:

Direct materials and labor 180,000

Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000

At what figure should the inventory be valued?

a. 225,000
b. 240,000
c. 205,000
d. 195,000

SOLUTION:

All costs are inventoriable

38.Which of the following statements is false under PAS 2 (Inventories)?

a. Specific identification of cost means that specific costs are attributed to

identified items of inventory.
b. The FIFO formula assumes that the items of inventory that were purchased
or produced first are sold first, and consequently the items remaining in
inventory at the end of the period are those most recently purchased or
produced.
c. Specific identification of cost is appropriate when there are large numbers of
items of items of inventory that are ordinarily interchangeable.
d. The cost of inventories of items that are not ordinarily interchangeable and
goods or services produced and segregated for specific projects shall be
assigned by using specific identification of their individual costs.

39.Under the periodic inventory approach the cost of goods sold during a period is
determined as follows:

a. beginning inventory - net purchases - ending inventory;

b. beginning inventory + net purchases - ending inventory;
c. opening inventory - net purchases + closing inventory.
d. opening inventory + net purchases + closing inventory;

40.On June 1, 2013, Toto Corp. sold merchandise with a list price of P20,000 to
Linn on account. Toto allowed trade discounts of 30% and 20%. Credit terms
were 2/15, n/40 and the sale was made f.o.b. shipping point. Toto prepaid P400
of delivery costs for Linn as an accommodation. On June 12, 2013, Toto
received from Linn a remittance in full payment amounting to

a. 10,976
b. 11,368
c. 11,196
d. 11,376

SOLUTION:

P20,000 × .7 × .8 = P11,200 (P11,200 × .98) + 400 = P11,376.

41.The cost of inventories shall be measured using

a. FIFO
b. Average method
c. LIFO
d. Either FIFO or average method

42.Ivan Retailers purchased merchandise with a list price of P50,000, subject to

trade discounts of 20% and 10%, with no cash discounts allowable. Ivan should
record the cost of this merchandise as

a. 50,000
 b. 39,000
c. 36,000
d. 35,000

SOLUTION:

P50,000 × .8 × .9 = P36,000

43.Inventories should be measured at

a. Lower of cost or net realizable value (LCNRV), by total

b. Cost or net realizable value, whichever is higher
c. Cost or fair value less costs to sell, whichever is lower
d. Lower of cost or net realizable value (LCNRV), item by item

44.When an entitys operating cycle is not clearly identifiable it is assumed to be:

a. six months;
b. nine months;
c. 12 months.
d. three months;

45.Transactions for the month of June were:

Purchases Sales
June (balance) 800 @ P3.20 June 2 600 @ P5.50
1
3 2,200 @ 3.10 6 1,600 @ 5.50
7 1,200 @ 3.30 9 1,000 @ 5.50
15 1,800 @ 3.40 10 400 @ 6.00
22 500 @ 3.50 18 1,400 @ 6.00
25 200 @ 6.00

Assuming that perpetual inventory records are kept in pesos, the ending
inventory on a LIFO basis is

a. 4,290
b. 4,160
c. 4,110
d. 4,470

SOLUTION:

(200 × P3.2) + (400 × P3.1) + (400 × P3.4) + (300 × P3.5) = P4,290

46.Which is not within the scope of PAS 2, Inventories?

a. Goods purchased by retailer and held for resale

b. Work in process produced by a manufacturing entity
 c. Cost of service of a service provider for which the entity has not recognized
the related
d. Work in progress arising under construction contracts

47.The measurement rule for inventories, mandated by PAS 2 Inventories, is:

a. lower of cost and net realisable value;

b. higher of initial cost and realisable value;
c. lower of fair value and selling price;
d. higher of completion costs and replacement costs.

48.The costs of purchase of inventories comprise all of the following, except

a. Import duties and other taxes

b. Purchase price
c. Transport, handling and other costs directly attributable to the acquisition of
inventories
d. Trade discounts, rebates and other similar items

49.Noy Company sells product 1976NLC for P40 per unit. The cost of one unit of
1976NLC is P36, and the replacement cost is P34. The estimated cost to
dispose of a unit is P8, and the normal profit is 40%. At what amount per unit
should product 1976NLC be reported, applying lower-of-cost-or-market?

a. 16
b. 34
c. 36
d. 32

SOLUTION:

NRV = P40 – P8 = P32, RC = P34 NRV – PM = P32 – (P40 × .40) = P16, cost =
P36

50.Given the historical cost of product Z is P160, the selling price of product Z is
P190, costs to sell product Z are P21, the replacement cost for product Z is
P166, and the normal profit margin is 40% of sales price, what is the amount
that should be used to value the inventory under the lower-of-cost-or-market
method?

a. 166
b. 169
c. 93
d. 160

SOLUTION:

Ceiling P169 (P190 – P21), Floor P93 (P169 – P76), RC P166; P166 MV, P160
Cost, LCM = P160
51.When manufacturing inventory, what is the accounting treatment for abnormal
freight in costs?

a. Charge to the finished goods inventory

b. Allocate to raw materials, work in process and finished goods
c. Charge to raw materials inventory
d. Charge to expense for the period

52.Given the acquisition cost of product Z is P32.00, the net realizable value for
product Z is P29.00, the normal profit for product Z is P2.50, and the market
value (replacement cost) for product Z is P30.00, what is the proper per unit
inventory price for product Z?

a. 32
b. 29
c. 30
d. 26.50

SOLUTION:

P29.00 MV, P32.00 Cost, LCM = P29.00

53.James Co. has the following data related to an item of inventory:

Inventory, March 1 100 units @ P4.20

Purchase, March 7 350 units @ P4.40
Purchase, March 16 70 units @ P4.50
Inventory, March 31 130 units

The value assigned to cost of goods sold if James uses FIFO is

a. 579
b. 1,696
c. 1,723
d. 552

SOLUTION:

100 + 350 + 70 – 130 = 390 units (100 × P4.20) + (290 × P4.40) = P1,696.

54.An entity should include one of the following items in its merchandise inventory.

a. Goods purchased FOB shipping point still en route

b. Goods purchased FOB destination still en route
c. Goods held for pick-up by the buyer
d. Goods sold FOB shipping point still en route

55.Philip, Inc. is a calendar-year corporation. Its financial statements for the years
2014 and 2013 contained errors as follows:
 2014 2013
Ending inventory P3,000 overstated P8,000 overstated
Depreciation expense P2,000 understated P6,000 overstated

Assume that no correcting entries were made at December 31, 2013. Ignoring
income taxes, by how much will retained earnings at December 31, 2014 be
overstated or understated?

a. P5,000 understated
b. P1,000 understated
c. P9,000 understated
d. P5,000 overstated

SOLUTION:

P6,000 - (P3,000 + P2,000) = P1,000

56.Neil Corporation acquired two inventory items at a lump-sum cost of P40,000.

The acquisition included 3,000 units of product CF, and 7,000 units of product
3B. CF normally sells for P12 per unit, and 3B for P4 per unit. If Neil sells 1,000
units of CF, what amount of gross profit should it recognize?

a. 1,500
b. 9,500
c. 8,000
d. 4,500

SOLUTION:

CF 3,000 × P12 = (P36,000 ÷ P64,000) × P40,000 = P22,500 3B 7,000 × P4 =

P28,000; P28,000 + P36,000 = P64,000 (1,000 × P12) - (P22,500 ×
1,000/3,000) = P4,500

57.Under the periodic inventory approach an appropriate journal entry to measure

closing inventory is:

a. Debit: Opening inventory (cost of goods sold expense)

Credit: Inventory (asset);
b. Debit: Inventory (asset)
Credit: Closing inventory (cost of goods sold expense);
c. Debit: Purchases returns (cost of goods sold expense)
Credit: Inventory (asset).
d. Debit: Purchases (expense)
Credit: Inventory (asset);

58.Which may be included as part of the cost of inventories under PAS 2?

a. Abnormal amounts of wasted materials, labor or other production costs

b. Administrative costs
c. Selling costs
 d. Costs of designing products for specific customers

59.Given the acquisition cost of product Dominoe is P86.62, the net realizable
value for product Dominoe is P76.98, the normal profit for product Dominoe is
P8.63, and the market value (replacement cost) for product Dominoe is P81.36,
what is the proper per unit inventory price for product Dominoe?

a. 76.98
b. 68.35
c. 86.62
d. 81.36

SOLUTION:

P76.98 MV, P86.62 Cost, LCM = P76.98

60.Which of the following is not considered as inventory under PAS 2?

a. Abnormal amounts of wasted materials, labor and other production costs

b. Land and other property purchased and held for resale
c. Supplies and materials awaiting use in the production process
d. Costs of service for which a service provider has not yet recognized the
related revenue

61.Which of the following should be included in inventory?

a. Goods held on consignment

b. Goods held for pick-up by the buyer
c. Goods out on consignment
d. Goods purchased FOB destination, still en route

62.The original cost of an inventory item is above the replacement cost and the net
realizable value. The replacement cost is below the net realizable value less the
normal profit margin. As a result, under the lower-of-cost-or-market method,
the inventory item should be reported at the

a. net realizable value

b. original cost
c. replacement cost
d. net realizable value less the normal profit margin

63.Diane, a chain of candy stores, purchases its candy in bulk from its suppliers.
For a recent shipment, the company paid P3,000 and received 8,500 pieces of
candy that are allocated among three groups. Group 1 consists of 2,500 pieces
that are expected to sell for P0.25 each. Group 2 consists of 5,500 pieces that
are expected to sell for 0.60 each. Group 3 consists of 500 pieces that are
expected to sell for P1.20 each. Using the relative sales value method, what is
the cost per item in group 3?

a. P0.900
 b. P0.796
c. P0.375
d. P1.200

SOLUTION:

(2,500 × P0.25) + (5,500 × P0.60) + (500 × P1.20) = P4,525; [(500 × P1.20) ÷

P4,525] × P3,000 = P398 ÷ 500 = P0.796

64.Which of the following costs of conversion cannot be included in the cost of

inventory?

a. Cost of direct labor

b. Factory overheads based on normal capacity
c. Factory rent and utilities
d. Salaries of sales staff

65.Which of the following is not an acceptable basis for valuation of inventory?

a. Historical cost
b. Current selling price less cost to complete and cost to sell
c. Prime cost
d. Standard cost

66.Under the lower-of-cost-or-market method, the replacement cost of an inventory

item would be used as the designated market value

a. when it is below the net realizable value and above the net realizable value
less the normal profit margin
b. regardless of net realizable value
c. when it is below the net realizable value less the normal profit margin
d. when it is above the net realizable value

67.A manufacturing company has which three basic types of inventory?

a. Raw materials, work-in-process and finished goods

b. Perpetual, periodic, and estimated
c. Finished goods, work-in-process and ready-to-sell-merchandise
d. Specific identification, FIFO and average cost

68.The seller actually paid the freight charges but is not legally responsible for the
same.

a. FOB shipping point, freight collect

b. FOB destination, freight collect
c. FOB shipping point, freight prepaid
d. FOB destination, freight prepaid

69.Which is incorrect concerning the maritime term FAS (free alongside)?

 a. The buyer bears the cost of loading and cost of shipment
b. The seller must bear all expenses and risk in delivering the goods to the
dock next to the vessel on which they are to be shipped
c. Title passes to the buyer when the carrier takes possession of the goods
d. Title passes upon receipt of the goods by the buyer

70.At certain stages of production, inventories of agricultural, forest and mineral

products are measured at

a. Net realizable value

b. Relative sales price
c. Cost
d. Standard cost

71.Information pertaining to the inventory of Toto Company as of December 31,

2013 follows:

A B C
Historical cost 2,000,000 2,500,000 3,500,000
Estimated selling price 2,200,000 3,600,000 4,000,000
Estimated cost of disposal 300,000 800,000 600,000
Normal profit margin 440,000 720,000 800,000
Current replacement cost 2,500,000 3,000,000 2,700,000

Toto records losses that result from applying the lower of cost or NRV rule,
what amount should the inventory is valued on December 31, 2013?

a. 7,800,000
b. 7,900,000
c. 8,100,000
d. 8,000,000

72.On October 1, 2013, Enrico Company consigned 50 freezers at a unit cost of

P15,000 to Geronimo Company for sale at P20,000 each and paid P20,000 in
transportation cost. On December 31,2013, Geronimo reported the sale of the
25 freezers and returned 10 units. Cost paid by the consignee on the returned
units was P4,000. Amount due to consignor was remitted on the same date.
Commission rate as agreed upon was 15%. What amount of inventory on
consignment and net income related to the sold units, respectively, should
Enrico report on December 31, 2013?

a. P231,000 and P32,000

b. P225,000 and P36,000
c. P235,000 and P40,000
d. P375,000 and P44,000

73.How should freight in cost and interest on inventory load affect a retailer's
inventory, respectively?

a. Increase and no effect

 b. No effect and increase
c. Increase and increase
d. No effect and no effect

74.If a manufacturer ships merchandise to a retailer on consignment, the unsold

merchandise should be included in the inventory of the

a. retailer
b. manufacturer
c. shipper
d. consignee

75.On December 15, 2012, Garry purchased goods costing P100,000. The terms
were F.O.B. shipping point. Costs incurred by the entity in connection with the
purchase and delivery of goods were normal freight charge of P3,000, handling
cost of P2,000, insurance on shipment of P500 and abnormal freight charge for
express shipping of P1,200. The goods were received on December 17, 2012.
What is the amount that the entity should charge to inventory?

a. 5,000
b. 6,700
c. 5,500
d. 3,000

76.Ming Limited had the following items of inventory at reporting date:

Item Quantity Cost/unit in NRV/unit in

Pesos Pesos
Refrigerators 10 100 95
Stoves 20 80 85

The adjustment necessary at reporting date is:

a. Debit: Inventory (P50)

b. Debit: Inventory (P100)
c. Credit: Inventory (P50)
d. Credit: Inventory (P0)

77.Which inventory costing method most closely approximates current cost for
each of the following:

a. Ending Inventory (LIFO); Cost of Goods Sold (LIFO)

b. Ending Inventory (FIFO); Cost of Goods Sold (FIFO)
c. Ending Inventory (LIFO); Cost of Goods Sold (FIFO)
d. Ending Inventory (FIFO); Cost of Goods Sold (LIFO)

78.A consignee paid the freight costs for goods shipped from a consignor. These
freight costs are to be deducted from the consignee’s payment to the consignor
when the consignment goods are sold. Until the consignee sells the goods, the
freight costs should be included in the consignee’s
 a. Freight out
b. Accounts receivable
c. Selling expenses
d. Cost of goods sold

Average:

79.Rey Inc. took a physical inventory at the end of the year and determined that
P475,000 of goods were on hand. In addition, the following items were not
included in the physical count. Rey, Inc. determined that P60,000 of goods were
in transit that were shipped f.o.b. destination (goods were actually received by
the company three days after the inventory count).The company sold P25,000
worth of inventory f.o.b. destination. What amount should Rey report as
inventory at the end of the year?

a. 475,000
b. 560,000
c. 535,000
d. 500,000

SOLUTION:

P475,000 + P25,000 = P500,000

80.Why might inventory be reported at sales prices (net realizable value or market
price) rather than cost?

a. When there is a controlled market with a quoted price applicable to all

quantities
b. When there are no significant costs of disposal
c. When a non-cancelable contract exists to sell the inventory
d. When there is a controlled market with a quoted price applicable to all
quantities and when there are no significant costs of disposal

81.Frey Company recorded the following data pertaining to raw material Y duuring
January of the current year.

Date Received Cost Issued On hand

January 1 Inventory 200 8,000
January 8 Issue 4,000 4,000
January 20 Purchase 12,000 240 16,000

The moving average unit cost of Y inventory at January 31 is

a. 240
b. 230
c. 224
d. 220
 SOLUTION:

Units Unit Cost Total Cost

January 1 8,000 200 1,600,000
January 8 (4,000) 200 (800,000)
4,000 200 800,000
January 20 12,000 240 2,880,000
3,680,000/16,000=23 16,000 230 3,680,000
0

82.Why are inventories stated at lower-of-cost-or-market?

a. To permit future profits to be recognized

b. To report a loss when there is a decrease in the future utility
c. To report a loss when there is a decrease in the future utility below the
original cost
d. To be conservative

83.John Company provided the following information for the current year:

Increase in raw materials inventory 150,000

Decrease in finished goods inventory 350,000
Raw materials purchased 4,000,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 400,000

There was no work in process inventory at the beginning and end of the year.
What is the cost of goods sold for the current year?

a. 9,200,000
b. 9,400,000
c. 9,750,000
d. 9,600,000

84.The buyer actually paid the freight charges but is not legally responsible for the
same.

a. FOB destination, freight prepaid

b. FOB shipping point, freight prepaid
c. FOB destination, freight collect
d. FOB shipping point, freight collect

85.The number of days' sales in inventory

a. measures the length of time it takes to acquire, sell, and replace the
inventory
b. is computed by dividing the cost of merchandise sold by 365
 c. is about the same for all industries
d. measures the length of time it takes to sell the merchandise on credit and
collect the account receivable

86.The use of a discount lost account implies that the cost of a purchased
inventory is the

a. Invoice price of the item

b. Invoice price less the purchase discount taken on the item
c. List price of the item
d. Invoice price less the purchase discount allowable whether or not take on
the item

87.Inventory should be stated at

a. Lower of cost and net realizable value

b. Lower of cost and fair value
c. Lower of cost and nominal value
d. Lower of cost and net selling price

88.Inventories shall be measured at

a. Cost
b. Lower of cost or net realizable value
c. Lower of cost or fair value less cost to sell
d. Net realizable value

89.If the specific identification of costing inventory is impracticable under the

circumstances, the cost of inventories is assigned by using which set of cost
flow assumptions?

a. LIFO or Inventory valuation

b. FIFO or LIFO
c. LILO or LIFO
d. FIFO or Inventory valuation

90.Which of the following items should be included in a company's inventory at the

balance sheet date?

a. Goods received from another company for sale on consignment

b. Goods sold to a customer which are being held for the customer to call for at
his or her convenience
c. Goods in transit which were purchased f.o.b. destination.
d. None of these

91.KoKo Company uses the retail method of inventory costing. They started the
year with an inventory that had a retail cost of P35,000. During the year they
purchased an inventory with a retail cost of P300,000. After performing a
physical inventory, they calculated their inventory at P60,000. The mark up is
100% of cost. Determine the ending inventory at its estimated cost.
 a. 35,000
b. 30,000
c. 120,000
d. 60,000

92.Uno Ltd uses a periodic inventory system and rounds the average unit cost to
the nearest peso. The following data relates to Uno Ltd for the year ended 30
June 2014:

Opening inventory 10 units x average cost of P25 each

January purchases 10 units x P24 each
February sales 8 units
March product returns 4 units
June sales 6 units
July purchases 39 units xP26 each
August sales 18 units
October purchases 10 units x P24 each
November sales 25 units

The cost of goods sold for the year using the weighted average method is:

a. 1,734
b. 1,425
c. 1,984
d. 1,528

93.Under PAS 2, commodities of broker-traders are measured at

a. Fair value less cost to sell

b. Fair value
c. Cost
d. Net realizable value

94.Control of inventory should begin as soon as the inventory is received. Which of

the following internal control steps is not done to meet this goal?

a. check the invoice extensions and totals

b. check the invoice with the person who specifically purchased the item
c. check the invoice to the receiving report
d. check the invoice to the purchase order

95.Which of the following inventories carried by a manufacturer is similar to the

merchandise inventory of a retailer?

a. Work-in-process
b. Supplies
c. Raw materials
d. Finished goods
96.Which method(s) may be used to record a loss due to a price decline in the
value of inventory?

a. Allowance method
b. Direct method
c. Sales method
d. Both a and c

97.An entity is a large manufacturer of machines. A major customer has placed an

order for a special machine for which it has given a deposit to the entity. The
parties have agreed on a price for the machine. As per the terms of the sale
agreement, it is FOB or free on board contract and the title passes to the buyer
when goods are loaded into the ship at the port. When should the revenue be
recognized by the entity?

a. When the costumer orders the machine

b. When the machine is loaded at the port
c. When the machine has been received by the customer
d. When the deposit is received

98.All of the following are related parties, except

a. A shareholder holding 10% of an entity's shares but is a member of the

entity's board of directors
b. Two manufacturing entities having a common director
c. Affiliates
d. Spouse of the individual

99.When the current year’s ending inventory is overstated

a. The next year’s income is overstated.

b. The current year’s cost of goods sold is overstated.
c. The current year’s total assets are understated.
d. The current year’s net income is overstated.

100. Rays Company accumulated the following quarterly cost data for the current
year:

Raw materials - beginning 90,000 units @ P7.00 P630,000

inventory
Purchases 75,000 units @ P8.00 600,000
120,000 units @ 1,020,000
P8.50

The entity transferred 195,000 units of raw materials to work in process during
the year.

Work in process - beginning 50,000 units @ 700,000

inventory P14.00
Direct labor 3,100,000
 Manufacturing overhead 2,950,000
Work in process - ending inventory 48,000 units @ 720,000
P15.00

The entity uses the FIFO method for valuing raw materials. What is the cost of
goods manufactured for the current year?

a. 8,235,000
b. 8,280,000
c. 7,535,000
d. 7,515,000

101. The use of a Discounts Lost account implies that the recorded cost of a
purchased inventory item is its

a. invoice price less the purchase discount taken

b. invoice price plus the purchase discount lost
c. invoice price
d. invoice price less the purchase discount allowable whether taken or not

102. Goods in transit which are shipped f.o.b. destination should be

a. included in the inventory of the buyer.

b. included in the inventory of the seller.
c. included in the inventory of the shipping company.
d. none of these

103. How should the following costs affect a retailer's inventory valuation?

a. Freight in (Increase); Interest on inventory loan ( No effect)

b. Freight in (No effect); Interest on inventory loan (No effect)
c. Freight in (No effect); Interest on inventory loan (Increase)
d. Freight in (Increase); Interest on inventory loan ( Increase)

104. Which of the following is not a common disclosure for inventories?

a. Inventory costing methods employed

b. Inventory financing arrangements
c. Inventory location
d. Inventory composition

105. The inventory standard requires that when inventories are written down to
net realizable value, they are written-down:

a. on the basis of industry segment.

b. according to geographical segment within the entity.
c. on an item-by-item basis.
d. on a class-by-class basis.

106. The cost of inventory shall be measured using

 a. LIFO
b. FIFO
c. Either FIFO or average method
d. Average method

107. During January of the current year, Metro Company which maintains a
perpetual inventory system, recorded the following information pertaining to its
inventory:

Units Received Total Cost Units on

hand
Balance on 1/1 10,000 100 1,000,000 10,000
Purchased on 1/7 6,000 300 1,800,000 16,000
Sold on 1/20 9,000 7,000
Purchased 1/25 4,000 500 2,000,000 11,000

Under the moving average method, what amount should Metro report as
inventory at January 31?

a. 2,640,000
b. 3,225,000
c. 3,300,000
d. 3,900,000

SOLUTION:

Units Unit Cost Total Cost

January 1 10,000 100 1,000,000
January 7 6,000 300 1,800,000
Balance (2,800/16,000) 16,000 175 2,800,000
January 20 sale (9,000) 175 (1,575,000)
Balance 7,000 175 1,225,000
January 25 4,000 500 2,000,000
Balance (3,225,000/11,000) 11,000 293 3,225,000

108. Entities must allocate the cost of all the goods available for sale between

a. The cost of goods on hand at the end of the period as reported on the
statement of financial position and the cost of goods acquired or produced
during the period.
b. The cost goods on hands at the beginning of the period as reported on the
statement of financial position and the cost of goods acquired or produced
during the period.
c. All of the choices are correct.
d. The income statement and the statement of financial position.

109. Jane Company provided the following data for the current year
 Inventory - January 1:
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory - December 31:
Cost 4,000,000
Net realizable Value 3,700,000

What amount should be reported as cost of goods sold under the LCNRV?

a. 7,200,000
b. 7,300,000
c. 7,000,000
d. 7,100,000

110. The following information was derived from the accounting records of Joey
Company for the current year:

Warehouse Goods held by

consignees
Beginning inventory 1,100,000 120,000
Purchases 4,800,000 600,000
Freight in 100,000
Transportation to consignees 50,000
Freight out 300,000 80,000
Ending inventory 1,450,000 200,000

What is the cost of goods sold for the current year?

a. 5,070,000
b. 5,120,000
c. 4,550,000
d. 4,850,000

111. A large manufacturer of cosmetics sells merchandise to a retailer, which in

turn sells the goods to the public at large through its chain or retail outlets. The
retailer purchases merchandise from the manufacturer under a consignment
contract. When should revenue from the sale of merchandise to the retailer be
recognized by the manufacturer?

a. It will depend on the terms of delivery of the merchandise, for example, CIF
or FOB
b. It will depend on the terms of payment
c. When the goods are delivered to the retailer
d. When the goods are sold by the retailer

112. If inventory levels are stable or increasing, an argument which is not an

advantage of the LIFO method as compared to FIFO is

a. income taxes tend to be reduced in periods of rising prices

 b. cost of goods sold tends to be stated at approximately current cost on the
income statement
c. income tends to be smoothed as prices change over time
d. cost assignments typically parallel the physical flow of goods

113. If an entity ended a period with a larger inventory that it had at the
beginning of the period, which of the following statements is true?

a. The cost of goods available for sale was smaller than cost of goods sold
b. The costs of goods sold was smaller than net purchases
c. The cost of goods sold was greater than net purchases
d. Net income was greater than gross profit

114. On December 31, 2013, Terence Company’s ending inventory was

P3,000,000, and the allowance for inventory write-down before any adjustment
was P150,000. Relevant information on December 31, 2013 follows:

Replaceme Sales Price NRV Normal

Cost nt Cost Profit
Product 1 800,000 900,000 1,200,000 550,000 250,000
Product 2 1,000,000 1,200,000 1,300,000 1,100,000 150,000
Product 3 700,000 1,000,000 1,250,000 950,000 300,000
Product 4 500,000 600,000 1,000,000 350,000 300,000

What amount of loss on inventory write-down is included in 2013 cost of goods

sold?

a. 250,000
b. 200,000
c. 50,000
d. 400,000

115. The inventory of a service provider may simply be described as

a. Unbilled services
b. Work in progress
c. Billed services
d. Services inventory

116. Which of the following is true about lower-of-cost-or-market?

a. It can increase future income

b. All of these
c. It usually understates assets
d. It is inconsistent because losses are recognized but not gains

117. Which of the following would not be included in the cost of work in process
inventory?
 a. Depreciation on office equipment in the sales manager’s office
b. Depreciation on factory equipment
c. Cost of electricity to operate factory equipment
d. Maintenance cost of factory equipment

118. During periods of rising prices, a perpetual inventory system would result in
the same dollar amount of ending inventory as a periodic inventory system
under which of the following inventory cost flow methods?

a. FIFO (Yes); LIFO (No)

b. FIFO (Yes); LIFO (Yes)
c. FIFO (No); LIFO (No)
d. FIFO (No); LIFO (Yes)

119. Which of the following describes the flow of product costs through the
inventory accounts of a manufacturer?

a. Raw materials, direct labor factory overhead, finished goods

b. Raw materials, goods in process, factory overhead, finished goods
c. Raw materials, direct labor, factory overhead
d. Raw materials, goods in process, finished goods

120. Designated market value

a. is always the middle value of replacement cost, net realizable value, and net
realizable value less a normal profit margin
b. may sometimes exceed net realizable value
c. should always be equal to net realizable value
d. should always be equal to net realizable value less a normal profit margin

121. On December 1, 2013, LCC Department Store received 505 sweaters on

consignment from James. James’s cost for the sweaters was P800 each, and
they were priced to sell at P1,000. LCC’s commission on consigned goods is
10%. At December 31, 2013, 5 sweaters remained. In its December 31, 2013
balance sheet, what amount should LCC report as payable for consigned goods?

a. 490,000
b. 454,000
c. 404,000
d. 450,000

SOLUTION:

Sweaters sold (500 x P1,000) 500,000

Less: Commission (10% x 500,000) 50,000
Payable for consigned goods 450,000

122. The terms 2/7 appearing on an invoice for the sale/purchase of inventory
means that the buyer:
 a. has 2 days from the invoice date to pay or will be charged a 7% surcharge.
b. has 7 days from the invoice date to pay or will be charged a 2% surcharge;
c. will receive a 7% discount if paid within 2 days of the invoice date;
d. will receive a 2% discount if paid within 7 days of the invoice date;

123. The weighted average inventories costing method is particularly suitable to

inventories where:

a. the entity carries stocks of raw materials, work-in-progress and finished

goods.
b. goods have distinct use-by dates and the goods produced first must be sold
earliest.
c. dissimilar products are stored in separate locations.
d. homogeneous products are mixed together.

124. For a manufacturing company, inventory cost shall include

a. Abnormal waste
b. Variable administrative overhead
c. Storage and selling costs
d. Fixed manufacturing overhead

125. The inventory turnover ratio is computed by dividing the cost of goods sold
by

a. average inventory
b. ending inventory
c. beginning inventory
d. number of days in the year

126. Which statement is not valid about the gross profit method?

a. It may be used to estimate inventory for interim statements

b. It is an acceptable accounting procedure
c. It may be used by auditors
d. It may be used to estimate inventory for annual statements

127. The fact that it is accepted practice to recognize decreases in the value of
inventory prior to the point of sale, but not increases, is an illustration of which
one of the following accounting concepts?

a. Objectivity
b. Consistency
c. Conservatism
d. Materiality

128. Goods on consignment should be included in the inventory of

a. The consignor but not the consignee

b. The consignee but not the consignor
 c. Both the consignor and the consignee
d. Neither the consignor nor the consignee

129. Which of the following is true regarding the use of LIFO for inventory
valuation?

a. If LIFO is used for external financial reporting, then it cannot be used for tax
purposes
b. For purposes of external financial reporting, LIFO may not be used with the
lower of cost or market approach
c. If LIFO is used for external financial reporting, then it must also be used for
internal reports
d. None of these

130. Roger Co. accepted delivery of merchandise which it purchased on account.

As of December 31, Roger had recorded the transaction, but did not include the
merchandise in its inventory. The effect of this on its financial statements for
December 31 would be

a. net income, current assets, and retained earnings were understated

b. net income was understated and current liabilities were overstated
c. net income was overstated and current assets were understated
d. net income was correct and current assets were understated

131. Determine the correct statement regarding cash discount

a. Purchase discount is recognized under the gross price method at the time of
purchase of goods
b. Purchase discount is recorded under the net price method when the cash
discount is taken
c. Purchase discount lost is recorded under the net price method when the
cash discount is not taken
d. Purchase discounts lost is recorded under gross price method when the cash
discount is not taken

132. A company determined the following values for its inventory as of the end of
its fiscal year:

Historical cost 100,000

Current replacement cost 70,000
Net realizable value 90,000
Net realizable value less a normal profit 85,000
margin
Fair value 95,000

What amount should the company report as inventory on its balance sheet?

a. P90,000
b. P85,000
c. P70,000
 d. P95,000

133. Under PAS 2 Inventories, items of inventory that are used by business
enterprise as components in a self-constructed property asset are required to
be:

a. added to a property construction provision account.

b. expensed directly into equity in the period in which the items are used;
c. aggregated into the cost of goods sold expense in the period in which the
items are used;
d. capitalised and depreciated;

134. LF Corporation, a manufacturer of Mexican foods, contracted in 2013 to

purchase 1,000 pounds of a spice mixture at P5.00 per pound, delivery to be
made in spring of 2012. By 12/31/10, the price per pound of the spice mixture
had dropped to P4.60 per pound. In 2013, LF should recognize

a. a loss of P400
b. a gain of P400
c. no gain or loss
d. a loss of P5,000

135. If a company uses the periodic inventory system, what is the impact on the
current ratio of including goods in transit f.o.b. shipping point in purchases, but
not ending inventory?

a. No effect on the current ratio

b. Not sufficient information to determine effect on the current ratio
c. Understate the current ratio
d. Overstate the current ratio

136. Lower of cost or net realizable value as it applies to inventory is best

described as the

a. Change in inventory value to net realizable value.

b. Assumption to determine inventory flow
c. Reporting of a loss when there is a decrease in the future utility below the
original cost.
d. Method of determining cost of goods sold

137. In a period of rising prices, the inventory method which tends to give the
highest reported inventory is

a. moving average
b. FIFO
c. weighted-average
d. LIFO

138. The use of discount lost account implies that a cost of purchased inventory
item is the
 a. Purchase and trade discounts of the item
b. Invoice price less the purchase discount not taken on the item
c. Invoice price plus the purchase discount not taken on the item
d. Invoice price of the item

139. Which method of inventory pricing best approximates specific identification

of the actual flow of costs and units in most manufacturing situations?

a. First-in, first-out
b. Base stock
c. Last-in, first-out
d. Average cost

140. Cost of goods sold is equal to

a. The cost of inventory on hand at the end of a period plus net purchases
minus the cost of inventory on hand at the beginning of a period
b. The cost of inventory on hand at the beginning of a period plus net
purchases minus the cost of inventory on hand at the end of a period
c. The cost of inventory on hand at the beginning of a period minus net
purchases plus the cost of inventory on hand at the end of a period
d. The cost of inventory on hand at the beginning of a period plus net sales
minus the cost of inventory on hand at the end of a period

141. What is the maximum amount at which inventory can be valued when the
goods have experienced a permanent decline in value?

a. Net realizable value reduced by a normal profit margin

b. Historical cost
c. Sales price
d. Net realizable value

142. Where inventories in an industry are measured by reference to historical

cost, which of the following measurement rules applies subsequent to initial
measurement:

a. Lower of cost and net realizable value

b. Replacement cost
c. Historical cost
d. Discounted cash flow

143. How is the gross profit method used as it relates to inventory valuation?

a. Verity the accuracy of the physical inventory

b. To estimate cost of goods sold
c. Verify the accuracy of the perpetual inventory records
d. To provide an inventory value of LIFO inventories.

144. Net realizable value is

 a. selling price less costs to complete and sell
b. selling price
c. acquisition cost plus costs to complete and sell
d. selling price plus costs to complete and sell

145. On April 1, Toronto Company had 6,000 units of merchandise on hand that
cost P120 per unit. During the month, Toronto had the following entries with
regard to the merchandise:

April 5 Purchased on account 15,000 units at P140 per unit

April 8 Returned 1,000 units from the April 5 purchase
April 29 Sold on account 16,000 units at P200 per unit

Toronto Company uses a perpetual inventory system and a FIFO cost flow. What
is the cost of goods sold for April?

a. 2,200,000
b. 2,144,000
c. 2,120,000
d. 2,080,000

146. FOB destination means that

a. The ownership of goods is transferred upon shipment of the goods by the

seller and the buyer is the owner of the goods while in transit
b. The freight charges are actually to be paid by the seller.
c. The freight charges are actually to be paid by the buyer
d. The ownership of goods is transferred upon receipt of the goods by the
buyer and the seller is the owner of the goods while in transit

147. On October 1, 2013, Hector Fuel Company sold 100,000 gallons of heating
oil to Karn Company at P30 per gallon. Fifty thousand gallons were delivered on
December 15, 2013, and the remaining 50,000 gallons were delivered on
January 15, 2014. Payment terms were: 50% due on October 1, 2013, 25% on
the first delivery, and the remaining 25% due on the second delivery. What
amount of revenue should Hector recognize from this sale during 2013?

a. 2,250,000
b. 1,500,000
c. 3,000,000
d. 750,000

SOLUTION:

Sales for 2010 (50,000 x 30) = 1,500,000

As a rule, revenue from sale of goods shall be recognized at the time of delivery
because it is at this point that the seller has transferred to the buyer the risks
and rewards of ownership of the goods.
148. During periods of rising prices, a perpetual inventory system would result in
the same among of ending inventory as periodic inventory system under which
method?

a. LIFO only
b. Neither FIFO nor LIFO
c. FIFO only
d. Both FIFO and LIFO

149. The inventory standard allows which of the following to be capitalized into
the cost of inventories:

a. Administrative overheads
b. Storage costs for finished goods
c. Normal wastage costs
d. Selling costs

150. Which of the following inventory valuation methods do car dealers use?

a. Weighted average periodic

b. Specific identification
c. Moving average
d. FIFO

151. Merchandise shipped FOB shipping point on the last day of the year should
ordinarily be included in

a. The seller’s inventory balance

b. Neither the buyer’s nor seller’s inventory balance
c. The buyer’s inventory balance
d. Both the buyer’s and the seller’s inventory balance

152. Recording inventory at net realizable value is permitted, even if it is above

cost, when there are no significant costs of disposal involved and

a. the internal revenue service is assured that the practice is not used only to
distort reported net income
b. there is a controlled market with a quoted price applicable to all quantities
c. a normal profit is not anticipated
d. the ending inventory is determined by a physical inventory count

153. The costing of inventory must be deferred until the end of the accounting
period under which of the following method of inventory valuation?

a. Moving average
b. FIFO perpetual
c. Weighted average
d. LIFO perpetual

154. Which of the following is a characteristic of a perpetual inventory system?

 a. Cost of goods sold is determined as the amount of purchases less the change
in inventory
b. Inventory records are not kept for every item
c. Cost of goods sold is recorded with each sale
d. Inventory purchases are debited to a Purchases account

155. Which of the following is an appropriate journal entry to recognise inventory

items that have been lost?

a. Debit: Inventory losses (expense)

Credit: Inventory (asset);
b. Debit: Cost of Goods Sold (expense)
Credit: Inventory (asset);
c. Debit: Inventory(asset)
Credit: Provision for inventory losses (liability);
d. Debit: Provision for Inventory losses (liability)
Credit: Inventory (asset).

156. Goods on consignment shall be included in the inventory of

a. The consignor but not the consignee

b. The consignee but not the consignor
c. Both the consignor and the consignee
d. Neither the consignor nor the consignee

157. Where inventories in an industry are measured by reference to historical

cost which of the following measurement rules applies subsequent to initial
measurement?

a. discounted cash flow;

b. lower of cost and net realisable value;
c. historical cost;
d. replacement cost.

158. The information provided below is for an item in Harris Corporations

inventory at year end. Harris presents its financial statements in accordance
with PFRS:

Historical cost P1,200

Estimated selling price 1,300
Estimated completion and selling costs 150
Replacement cost 1,100

What should be the value of this inventory item in the companys financial
statements?

a. 1,100
b. 1,150
c. 1,300
 d. 1,200

SOLUTION:

Under PFRS, inventory is presented at the lower of cost (P1,200) or net

realizable value (P1,300 selling price - P150 estimated completion and selling
costs). Therefore, the item should be valued at P1,050.

159. In a period of rising prices which inventory method generally provides the
greatest amount of net income?

a. Specific identification
b. Average cost
c. FIFO
d. LIFO

160. When using the periodic inventory system, which of the following generally
would not be separately accounted for in the computation of cost of goods sold?

a. Cash (purchase) discounts taken during the period

b. Trade discounts applicable to purchases during the period
c. Cost of transportation-in for merchandise purchased during the period
d. Purchase returns and allowances of merchandise during the period

161. An entity should include one of the following items in its merchandise
inventory.

a. Goods sold FOB shipping point still en route

b. Good purchased FOB shipping point still en route
c. Goods purchased FOB destination still en route
d. Goods held for pick up by the buyer

162. PAS 2 Inventories requires that when inventories are written down to net
realisable value, they are written-down:

a. according to geographical segment within the entity.

b. on the basis of industry segment;
c. on an item-by-item basis;
d. on a class-by-class basis;

163. An entity’s inventory cost in its statement of financial position was lower
using first-in, first-out than last-in, first-out. Assuming no beginning inventory,
what direction did the cost of purchases move during the period?

a. Down
b. Steady
c. Cannot be determined
d. Up
164. The accounts payable balance of Dave Company was P2,200,000 on
December 31, 2013 before considering the following data:

 Goods shipped to the entity on December 31, 2013 FOB shipping point were
lost in transit. The invoice cost of P40,000 was not recorded. On January 15,
2014, the entity filed a P40,000 claim against the common carrier.
 On December 30, 2013, a vendor authorized the entity to return for full
credit goods shipped and billed at P70,000 on December 15, 2013. The
returned goods were shipped by the entity on December 31, 2013. A
P70,000 credit memo was received and recorded by the entity on January
15, 2014.
 Goods with an invoice cost of P50,000 shipped to the entity FOB destination
on December 26, 2013 were received on January 15, 2014.

What amount should be reported as accounts payable on December 31, 2013?

a. 2,280,000
b. 2,180,000
c. 2,170,000
d. 2,230,000

165. Alex Company provided the following information:

2013 2014
Net income using LIFO 2,800,000 3,000,000
Year-end inventory:
LIFO 1,000,000 1,400,000
FIFO 1,500,000 2,000,000

What is the net income for 2013 using FIFO cost flow?

a. 3,100,000
b. 3,600,000
c. 2,900,000
d. 3,300,000

166. Henry Company has a cost card in relation to an inventory manufactured as

follows:

Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000

At what figure should the inventory be valued?

a. 980,000
b. 760,000
c. 940,000
d. 880,000
 SOLUTION:

Materials 700,000
Production labor costs 60,000
Production overheads 760,000

167. Commodities of broker – traders are measured at

a. Fair value
b. Cost
c. Net realizable value
d. Fair value less cost to sell

168. Generally accepted accounting principles require the selection of an

inventory cost flow method which

a. Most clearly reflects the periodic income

b. Most closely approximates lower of cost and net realizable value for the
ending inventory
c. Matches the actual physical flow of goods from inventory with sales revenue
d. Yields the most conservative amount of reported income

169. When an inventory costing formula is changed, the change is required to be

applied:

a. prospectively and the adjustment taken through the current profit or loss;
b. retrospectively and the adjustment recognised as an extraordinary gain or
loss.
c. retrospectively and the adjustment taken through the opening balance of
retained earnings;
d. prospectively and the current period adjustment recognised directly in
equity;

170. Which at the following would not be included in the cost of work-in-process
inventory?

a. Depreciation on factory equipment

b. Depreciation on office equipment in the sales manager's office
c. Cost of electricity to operate factory equipment
d. Maintenance cost of factory equipment

171. On July 1, 2013, Henry Company purchased a tract of land for P12,000,000.
The entity incurred additional cost of P3,000,000 in preparing the land for sale.
The tract of land was subdivided into residential lots as 100 Class A lots with
sale price of P240,000 per lot, 100 Class B lots with sale price of P160,000 per
lot, and 200 Class C lots with sale price of P100,000 per lot. What amount of
the costs should be allocated to Class A lots?

a. 3,750,000
 b. 3,000,000
c. 6,000,000
d. 7,200,000

172. All of the following will result in realized holding gains or losses using
current cost accounting concept, except

a. Inventory on hand
b. Amortization of patent
c. Depreciation
d. Cost of sales

173. If the selling price of inventory that has been written down to net realizable
value in a prior period, subsequently recovers, the:

a. adjustment must be recognised in a provision for future inventory write-

downs
b. value adjustment can be recognised immediately in equity;
c. carrying amount of the inventory cannot be adjusted;
d. previous amount of the write-down can be reversed;

174. If an item of inventory that was written down to net realizable value in a
prior period subsequently recovers, then:

a. Adjustment must be recognized in a 'provision for future inventory write-

downs' account
b. Previous amount of the write-down cab be reversed
c. Carrying amount of the inventory cannot be adjusted
d. Value adjustment can be recognized immediately in equity

175. How should trade discounts be dealt with valuing inventories at the lower of
cost and net realizable value (NRV)?

a. Added to cost
b. Ignored
c. Deducted from cost
d. Deducted in arriving at NRV

176. The inventory standard prohibits which of the following from being included
in the cost of inventories:

a. Freight (where the terms of sale are FOB destination)

b. Import duties
c. Production overheads
d. Trade discounts received

177. Mildred Company is a wholesaler of office supplies. The activity for

inventory of calculators during August is shown below:

Unit Unit costs

 Augus 1 Inventory 20,000 36.00
t
7 Purchase 30,000 37.20
12 Sale 36,000
21 Purchase 48,000 38.00
22 Sale 38,000
29 Purchase 16,000 38.60

If Mildred Company uses a FIFO periodic inventory system, the ending

inventory at August 31 is reported at

a. 1,522,880
b. 1,501,600
c. 1,529,600
d. 1,500,800

Difficult:

178. Norman Company is a wholesale distributor of automotive replacement

parts. Initial amounts taken from accounting records on December 31, 2014 are
as follows:

Inventory at December 31 (based on physical count) 1,250,000

Accounts payable 1,000,000
Sales 9,000,000

A Parts held on consignment from another entity to Norman, the consignee,

amounting to P165,000, were included in the physical count on December
31, 2014, and in accounts payable at December 31, 2014.
B P20,000 of parts which were purchased and paid for in December 31,
2014, were sold in the last week of 2014 and appropriately recorded as
sales of P28,000. The parts were included in the physical count on
December 31, 2014, because the parts were on the loading dock waiting
to be picked up by the customer.
C Parts in transit on December 31, 2014 to customers, shipped FOB
shipping point on December 28, 2014, amounted to P34,000. The
customers received the parts on January 6, 2012. Sales of P40,000 to the
customers for the parts were recorded by Norman on January 2, 2014.
D Retailers were holding P210,000 at cost and P250,000 at retail, of goods
on consignment from Norman, at their stores on December 31, 2013.
E Goods were in transit from a vendor to Norman on December 31, 2013.
The cost of goods was P250,000. The goods were shipped FOB shipping
point on December 29, 2013

What is the correct amount of sales?

a. 9,000,000
b. 9,290,000
c. 9,040,000
 d. 9,250,000

179. When determining the net realisable value of inventory, estimates must be
made of the following:

I. Estimated costs of completion (if any).

II. Expected replacement cost
III. Expected selling price.
IV. Estimated selling costs.

a. I, II and III only;

b. I, III and IV only.
c. II and IV only;
d. I, II, III and IV;

180. The physical count of Josef Company on December 31, 2012 revealed
merchandise with a total cost of P5,000,000. Goods sold to a customer, which
are being held for the customer to call at the customer's convenience with a
cost of P200,000 were excluded from the count. A packaging case containing a
product costing P500,000 was standing in the shipping room when the physical
inventory was taken. This was not included in the inventory because it was
marked "hold for shipping instructions." An investigation revealed that the
customer's order was dated December 28, 2012, but that that case was shipped
and the customer billed on January 4, 2013. A special machine costing
P250,000, fabricated to order for a customer, was finished and specifically
segregated at the shipping room on December 31, 2012. The customer was
billed on that date and the machine was excluded from the inventory although it
was shipped on January 2, 2013. What is the correct amount of inventory that
should be reported on December 31, 2012?

a. 5,500,000
b. 5,950,000
c. 5,750,000
d. 5,700,000

181. Stock take discrepancies between a count sheet and recorded quantities in
the ledger may arise due to:

I. Theft of stock during the year

II. Stock purchased under FOB destination terms being in transit at period
end
III. A consignee including consignment stock in their physical count.
IV. Sales returns not being processed into the ledger

a. I, II and IV
b. II, III and IV
c. I, III and IV
d. I, II and III
182. Josh Company manufactures and sells paper envelopes, The stock of
envelopes was included in the closing inventory as of December 31, 2014, at a
cost of P50 each per pack. During the final audit, the auditors noted that the
subsequent sale price for the inventory at January 15, 2015, was P40 each per
pack. Furthermore, inquiry reveals that during the physical stock take, a water
leakage has created damages to the paper and glue. Accordingly, in the
following week, Josh Company spent a total of P15 per pack for repairing and
reapplying glue to the envelopes. The net realizable value and inventory write-
down (loss) amount to

a. P45 and P10 respectively

b. P30 and P15 respectively
c. P25 and P25 respectively
d. P40 and P10 respectively

SOLUTION:

The net realizable value is the subsequent sale price, P40, less any cost
incurred to bring the good to its salable condition, P15. Thus NRV=40-15=25
per pack. The loss (inventory write-down) per pack is the difference between
cost and net realizable value: 50-25=25 per pack.

183. Siemens Cellular ships a consignment of its smartphone to a retail outlet of

the Consumer Products Division. Siemens Cellular’s cost of the consigned
goods is P3,700, and it shifts the inventory cost into a separate inventory count
to track the physical location of the goods. The entry is as follows:

Consignment out inventory 3,700

Finished goods inventory 3,700

A third party shipping company ships the smartphones from Siemens Cellular to
Consumer Products. Upon receipt of an invoice for this P550 shipping expense,
Siemens Cellular charges the cost to consignment inventory with the following
entry:

Consignment out inventory 550

Accounts payable 550

Consumer Products sells half the consigned inventory during the month for
P2,750 in credit card payments, and earn a 22% commission on these sales,
totaling P605. According to the consignment arrangement, Siemens Cellular
must reimburse Consumer Products for the 2% credit card processing fee.

How much is due to Siemens Cellular?

a. 2,695
b. 2,750
c. 2,090
d. 2,550
 SOLUTION:

Sales price to Consumer Product’s customer earned on behalf of 2,75

Siemens Cellular 0
Less: Amounts due to Customer Product in accordance with
arrangement
22% sales commission 605
Reimbursement for credit card processing fee (2,750 x 2%) 55
Due to Siemens Cellular 2,090

184. PAS 2 requires separate disclosure of:

a. where there has been abnormal wastage which has been expensed
b. details of key terms of purchase
c. interest costs which have been capitalised into the cost of inventory
d. details of inventory pledged as security for loans

185. At December 31, 2012, Rick Corporation reported current assets of

P2,400,000 and current liabilities of P1,200,000. The following items may have
been recorded incorrectly.

I. Goods purchased costing P132,000 were shipped FOB shipping point by a

supplier on December 28. Rick received and recorded the invoice on
December 29, but the goods were not included in Rick’s physical count of
inventory because they were not received until January 4.
II. Goods purchased costing P90,000 were shipped FOB destination by a
supplier on December 26. Rick received and recorded the invoice on
December 31, but the goods were not included in Rick’s physical count of
inventory because they were not received until January 2.
III. Goods held on consignment from Magno Corporation were included in Rick’s
physical count of inventory at P78,000.

What is Rick’s current ratio after corrections are made?

a. 2.04 to 1
b. 2.21 to 1
c. 2.09 to 1
d. 2.0 to 1

SOLUTION:

Current Assets Current

Liabilities
Balances per books 2,400,000 1,200,000
I. Goods in transit, purchased FOB shipping
point, not included in count 132,000 -
II. Goods in transit, purchased FOB
destination, recorded as purchase - (90,000)
III. Goods held on consignment included in
count (78,000) -
 Adjusted balances 2,454,000 1,110,000

Current ratio 2,454,000/1,110,000=2.21

186. At December 31, 2012, Rick Corporation reported current assets of

P2,400,000 and current liabilities of P1,200,000. The following items may have
been recorded incorrectly.

I. Goods purchased costing P132,000 were shipped FOB shipping point by a

supplier on December 28. Rick received and recorded the invoice on
December 29, but the goods were not included in Rick’s physical count of
inventory because they were not received until January 4.
II. Goods purchased costing P90,000 were shipped FOB destination by a
supplier on December 26. Rick received and recorded the invoice on
December 31, but the goods were not included in Rick’s physical count of
inventory because they were not received until January 2.
III. Goods held on consignment from Magno Corporation were included in Rick’s
physical count of inventory at P78,000.

By what amount will income before taxes be adjusted up or down as a result of

the corrections?

a. P120,000 increase
b. P36,000 decrease
c. P78,000 decrease
d. P144,000 increase

187. Merchandise inventory at the end of the year was inadvertently overstated.
Which of the following statements correctly states the effect of the error on net
income, assets, and stockholders' equity?

a. net income is overstated, assets are overstated, stockholders' equity is

understated
b. net income is overstated, assets are overstated, stockholders' equity is
overstated
c. net income is understated, assets are understated, stockholders' equity is
understated
d. net income is understated, assets are understated, stockholders' equity is
overstated

188. Jojy Corporation encounters the following product cost situations as part of
its quarterly reporting:

 It only conducts inventory counts at the end of the 2nd quarter and end of
the fiscal year. Its typical gross profit is 30%. The actual gross profit at the
end of the 2nd quarter is determined to have been 32% for the first 6
months of the year. The actual gross profit at the end of the year is
determined to have been 29% for the entire year.
 It determines that, at the end of the 2nd quarter, due to peculiar market
conditions, there is a net realizable value adjustment to certain inventory
 required in the amount of P90,00. Jojy expects that this market anomaly will
be corrected by year-end, which indeed does occur in late December.
 It suffers a decline of P65,000 in the market value of its inventory during the
third quarter. This inventory value increases by P75,000 in the 4th quarter.
 It suffers a clearly temporary decline of P10,000 in the market value of a
specific part of its inventory in the first quarter, which recovers in the 2nd
quarter.

The sales of the Company are as follows:

1st Quarter 10,000,000

2md Quarter 8,500,000
3rd Quarter 7,200,000
4th Quarter 11,800,000

How much is the total cost of goods sold in the 3rd quarter?

a. 6,010,000
b. 6,050,000
c. 5,660,000
d. 5,105,000

SOLUTION:

1st Qrtr 2nd Qrtr 3rd Qrtr 4th Qrtr Full Year
Sales 10,000,0 8,500,00 7,200,00 11,800,0 37,500,0
00 0 0 00 00
COS % 70% - 70% - -
COS, GP method 7,000,00 - 5,040,00 - -
0 0
COS based on actual - 5,580,0 - 9,005,0 26,625,
count 00 (1) 00 (2) 000
Temporary net
realizable value decline
in specific inventory (3) - 90,000 - (90,000) -
Decline in inventory
value with subsequent - - 65,000 (65,000) -
increase (4)
Temporary decline in
inventory value (5) 10,000 (10,000) - - -
Total COS 7,010,00 5,660,00 5,105,00 8,850,00 26,625,0
0 0 0 0 00

(1) 18,000,000 x (1-32% gross margin) - 7,000,000 (1st quarter cost of sales) (2)
37,500,000 sales x (1-29% gross margin) - 17,620,000 (Quarters 1-3 cost of
sales) (3) Eventhough anticipated to recover, the NRV decline must be
recognized. (4) Full recognition of market value decline, followed by recognition
of market value increase, but only in the amount needed to offset the amount of
the initial decline. (5) No deferred recognition to temporary decline in value.
189. Net realisable value of inventories may fall below cost for a number of
reasons including:

I. Product obsolescence.
II. Physical deterioration of inventories.
III. An increase in the expected replacement costs of the inventory.
IV. An increase in the estimated costs of completion.

a. II, III and IV only;

b. I, II and IV only;
c. I, III and IV only;
d. I and II only.

190. All of the following are common classifications for the disclosure of
inventories in a set of financial statements:

I II III IV
Raw materials Yes Yes No No
Finished goods Yes Yes Yes Yes
Work in progress No Yes Yes No
Assets held for resale No Yes No Yes

a. IV.
b. II
c. III
d. I

191. You are auditing the financial statements of Bryan Inc. for the year ended
December 31, 2013. The company maintains its books on a semi-accrual and
semi-cash basis. Purchases and sales are recognized on an accrual basis while
other operating expenses are kept on cash basis. The company bookkeeper
presented to you a draft of its income statements for the year under audit:

Sales 600,000
Cost of Sales 360,000
Gross Profit 240,000
Depreciation Expense (29,000)
Other Expenses (166,000
)
Interest Expense (20,000)
Net Income 25,000

Your investigation revealed the following information:

 On January 1, 2013, Bryan issued P200,000, 10%, 10 year bonds when the
market rate of interest was 8%. Interest is payable on June 30 and
December 31.
 All purchases of inventory are on account and other expenses reflect those
expenses paid in cash during the period.
  The company had open invoice (unpaid invoices) from suppliers amounting
to P120,000 on December 31, 2013 and P116,000 on January 1, 2013
 The company had outstanding invoices (uncollected invoices) to customers
amounting to P96,000 on January 1, 2013 and P110,000 on December 31,
2013.
 Inventory taking at the end of each year revealed that inventory on hand on
December 31, 2012 amounted to P186,000 while inventory on December 31,
2013 was at P174,000.
 Accrued utilities at the beginning and at the end of the year amounted to
P5,000 and P7,000 respectively while prepaid rentals at the beginning and
at the end of the year amounted to P10,000 and P14,000, respectively.

How much was paid for inventory purchases?

a. 348,000
b. 372,000
c. 344,000
d. 368,000

192. On June 1 of the current year, Nelson Company sold merchandise with a list
price of P5,000,000 to Henry on account. Nelson allowed trade discounts of
30% and 20%. Credit terms were 2/10, n/30 and the sale was made FOB
shipping point. Nelson prepiad P200,000 of delivery costs for Henry as an
accomodation. On June 11 of the current year, Nelson received from Henry a
remittance in full payment amounting to

a. 2,744,000
b. 2,940,000
c. 3,140,000
d. 2,944,000

SOLUTION:

List price 5,000,000

Trade discounts: 30% x 5,000,000 (1,500,000)
3,500,000
Trade discounts: 20% x 3,500,000 (700,000)
Invoice price 2,800,000
Cash discount (2% x 2,800,000) (56,000)
Net amount 2,744,000
Add: Reimbursement of deliver cost 200,000
Total remittance from Henry 2,944,000

193. The management of Michael, Inc has engaged you to assist in the
preparation of year-end financial statements. You are told that on November 30,
the correct inventory level was 145,730 units. During the month of December,
sales totaled 138,630 units including 40,000 units shipped on consignment to
Matthew Corp. A letter received from Matthew indicates that as of December
31, it has sold 15,200 units and was still trying to sell the reminder.A review of
the December purchase orders to various suppliers shows the following:
 PO Date Inv. Date Qty in Date Date Terms
units shipped received
12/31/20 1/2/2013 4,200 1/2/2013 1/5/2013 FOB Destination
12
12/5/201 1/2/2013 3,600 12/17/20 12/22/20 FOB Destination
2 12 12
12/6/201 1/3/2013 7,900 1/5/2013 1/7/2013 FOB Shipping point
2
12/18/20 12/20/12 8,000 12/29/20 1/2/2013 FOB Shipping point
12 12
12/22/20 1/5/2013 4,600 1/4/2013 1/6/2013 FOB Destination
12
12/27/20 1/7/2013 3,500 1/5/2013 1/7/2013 FOB Destination
12

Michael, Inc uses the passing of legal title for inventory recognition.
Goods purchased during December totaled

a. 19,500 units
b. 11,600 units
c. 15,800 units
d. 8,000 units

SOLUTION:

Inventory quantity, Nov. 30 145,730

Add: December purchases
Purchased under FOB Destination received 12/22/2012 3,600
Purchased under Shipping point shipped 12/29/2012 8,000 11,600
Units available for sale 157,330
Less: Units sold in December
Consignment sales 15,200
Other sales (138,630 - 40,000) 98,630 113,830
Inventory quantity, Dec. 31 43,500

194. If the estimated rate of gross profit is 40%, what is the estimated cost of the
merchandise inventory on June 30, based on the following data?

June 1 Merchandise inventory P 75,000

June 1-30 Purchases (net) 150,000
June 1-30 Sales (net) 135,000

a. 140,000
b. 54,500
c. 81,000
d. 144,000

195. During the taking of its physical inventory on December 31, 2017, Alberts
Bike Shop incorrectly counted its inventory as P210,000 instead of the correct
 amount of P180,000. The effect on the balance sheet and income statement
would be as follows:

a. assets and retained earnings overstated by P30,000; net income understated

by P30,000.
b. assets and retained earnings overstated by P30,000; net income overstated
by P30,000.
c. assets overstated by P30,000; retained earnings understated by P30,000; net
income statement understated by P30,000.
d. assets overstated by P30,000; retained earnings understated by P30,000; no
effect on the income statement.

196. Beginning inventory, purchases and sales data for tennis rackets are as
follows:

Feb 3 Inventory 12 units at P15

11 Purchase 13 units at P17
14 Sale 18 units
21 Purchase 9 units at P20
25 Sale 10 units

Assuming the business maintains a perpetual inventory system, calculate the

cost of merchandise sold and ending inventory under First-in, first-out:

a. cost of merchandise sold 491; ending inventory 90

b. cost of merchandise sold 461; ending inventory 120
c. cost of merchandise sold 90; ending inventory 491
d. cost of merchandise sold 120; ending inventory 461

SOLUTION:

a. Cost of merchandise sold = P461 (180+102+119+60) Ending Inventory =

P120 (6 units @ P20)

197. Merchandise inventory at the end of the year is overstated. Which of the
following statements correctly states the effect of the error?

a. cost of merchandise sold is overstated

b. net income is understated
c. gross profit is understated
d. stockholders' equity is overstated

198. Mishiel Company sells one product, which it purchases from various
suppliers. The trial balance at December 31, 2013 included the following
accounts:

Sales (100,000 units at P150) 15,000,000

Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
 The inventory purchases during 2013 were as follows:

Units Unit Cost Total cost

Beginning inventory, Jan 1 20,000 60 1,200,000
Purchases, quarter ended March 31 30,000 65 1,950,000
Purchases, quarter ended June 30 40,000 70 2,800,000
Purchases, quarter ended Sept 30 50,000 75 3,750,000
Purchases, quarter ended Dec 31 10,000 80 800,000
150,000 10,500,000

Mishiel’ accounting policy is to report inventory in its financial statements at

the lower of cost of or net realizable value. Cost is determined under the FIFO.

Mishiel has determined that, at December 31, 2013, the replacement cost of its
inventory was P70 per unit and the net realizable value was P72 per unit. The
normal profit margin is P10 per unit.

What should Mishiel report as cost of goods sold for 2013?

a. 6,500,000
b. 6,300,000
c. 6,700,000
d. 6,900,000

SOLUTION:

September 30 (40,000 x 75) 3,000,000

December 31 (10,000 x 80) 800,000
FIFO cost 3,800,000
Net realizable value (50,000 x 72) 3,600,000
Inventory writedown 200,000

Inventory - Jan 1 at cost 1,200,000

Purchases 9,300,000
Purchase discount (400,000)
Goods available for sale 10,100,000
Inventory - Dec 31 at cost (3,800,000)
Cost of goods sold before writedown 6,300,000
Loss on inventory writedown 200,000
Cost of goods sold after writedown 6,500,000

199. In your review of Gaddy Company, you find that a physical inventory on
December 31, 2013, showed merchandise with a cost of P441,000 was on hand
at that date. You also discover the following items were all excluded from the
P441,000.

 Merchandise of P61,000 which is held by Gaddy on consignment. The

consignor is Kisses Company
  Merchandise costing P38,000 which was shipped by Gaddy F.O.B Destination
to a customer on December 31, 2013. The customer was scheduled to
receive the merchandise on January 2, 2014.
 Merchandise costing P46,000 which was shipped by Gaddy F.O.B Shipping
point to a customer on December 29, 2013. The customer was scheduled to
receive the merchandise on January 2, 2014.
 Merchandise costing P83,000 shipped by a vendor F.O.B Destination on
December 30, 2013, and received by Gaddy on January 4, 2014.
 Merchandise costing P51,000 shipped by a vendor F.O.B seller on December
31, 2013, and received by Gaddy on January 5, 2014

Based on the above information, calculate the amount that should appear on
the Gaddy's statement of financial position at December 3, 2013, for inventory?

a. 479,000
b. 538,000
c. 441,000
d. 530,000

200. Mint Manufacturing is a manufacturing business. During 2013 financial

year, the directors reviewed Mint’s accounting policies and identified
inventories as an area where it could change the current accounting policy with
respect to inventory to better reflect the actual economic substance of its
business.

The directors decided to change the valuation method used for raw material
from the weighted average cost method to the FIFO method.

The value of the inventories is as follows:

Weighted average FIFO

December 31, 2012 160,000 140,000
December 31, 2013 190,000 160,000

Mint was unable to obtain figures as at January 1, 2012, for inventory in terms
of FIFO as it was determined to be impractical. Ignore any income tax effects.

How much is the net decrease in inventory value to be recorded as part of cost
of sales on December 31, 2013?

a. 10,000
b. 30,000
c. 50,000
d. 20,000

SOLUTION:

The changes in the closing carrying amounts of inventories due to the change in
the accounting policy are as follows:
 Weighted FIFO Decrease in
average values
December 31, 2012 160,000 140,000 (20,000)
December 31, 2013 190,000 160,000 (30,000)

Due to the change in the accounting policy, the carrying values of inventories
decreased at the beginning of the period with P20,000 and the end of the
period with P30,000. The effect of this decrease is an increase in the cost of
sales of P10,000 (30,000-20,000) for the period ended December 31, 2012.
Journal entry: December 31, 2013

Cost of sales 10,000

Retained earnings 20,000
Inventories 30,000

201. In your audit of the December 31, 2012, financial statements of John Inc,
you found the following inventory related transactions.

 Goods costing P50,000 are on cosnignment with a customer. These goods

were not included in the physical count on December 31, 2012.
 Goods costing P16,500 were delivered to John, Inc on January 4, 2013. The
invoice for these goods was received and recorded on January 10, 2013. The
invoices and the shipment was made on December 29, 2012, FOB shipping
point.
 Goods costing P21,640 were shipped FOB shipping point on December 31,
2012, and were received by the customer on January 2, 2013. Although the
sale was recorded in 2012, these goods were included in the 2012 ending
inventory.
 Goods costing P8,640 were shipped to a customer on December 31, 2012,
FOB destination. These goods were delivered to the customer on January 5,
2013, and were not included in the inventory. The sale was properly taken
up in 2013.
 Goods costing P8,600 shipped by a vendor under FOB destination term,
were received on January 3, 2013, and thus were not included in the
physical inventory. Because the related invoice was received on December
31, 2012, this shipment was recorded as a purchase in 2012.
 Goods valued at P51,000 were received from a vendor under consignment
term. These goods were included in the physical count.
 John, Inc. recorded as a 2012 sale a P64,300 shipment of goods to a
customer on December 31, 2012, FOB Destination. This shipment of goods
costing P37,500 was received by the customer on January 5, 2013, and was
not included in the ending inventory figure.

Prior to any adjustments, John, Inc.’s ending inventory is valued at P445,000

and the reported net income for the year is P1,648,000.

John’s Inc December 31, 2012 inventory should be increased by

a. 61,640
b. 8,000
 c. 40,000
d. 66,000

SOLUTION:

Inventory, 2012 Net Income

12/31/2012
Per client 445,000 1,648,000
a. Goods on consignment with a 50,000 50,000
customer
b. Goods purchased FOB shipping 16,500 -
point
c. Goods sold FOB shipping point (21,640) (21,640)
d. Goods sold FOB destination 8,640 8,640
e. Goods purchased FOB destination - 8,600
f. Goods received on consignment (51,000) (51,000)
g. Goods sold FOB destination 37,500 (26,800)
Per audit 485,000 1,615,800

Inventory per audit 485,000

Inventory per client 445,000
Adjustment 40,000

202. Which of the following internal control activities most likely would prevent
direct labor hours from being charged to manufacturing overhead?

a. Use of time tickets to record actual labor worked on production orders

b. Reconciliation of work-in-process inventory with periodic cost budgets
c. Comparison of daily journal entries with approved production orders
d. Periodic independent counts of work in process for comparison to recorded
amounts

203. On the basis of the following data, what is the estimated cost of the
merchandise inventory on October 31 by the retail method?

Cost Retail
Oct. 1 Merchandise Inventory P225,000 P324,500
Oct. 1-31 Purchases (net) 335,000 475,500
Oct. 1-31 Sales (net) 700,000

a. 70,000
b. 372,000
c. 140,000
d. 100,000

204. In a manufacturing company, the "just-in-time" concept of inventory

management is best illustrated by:

a. Receiving deliveries of materials from suppliers just before the materials are
used in the production process
 b. Completing the manufacturing process just before the deadline established
by the customer
c. An automated factory which reduces production time below that of other
companies in the industry
d. Selling finished products before they go out of style

205. The inventory data for an item for November are:

Nov. 1 Inventory 20 units at P20

4 Sold 10 units
10 Purchased 30 units at P21
17 Sold 20 units
30 Purchased 10 units at P22

Using the perpetual system, costing by the first-in, first-out method, what is the
cost of the merchandise inventory of 30 units on November 30?

a. 610
b. 640
c. 630
d. 620

206. Inventory costing methods place primary emphasis on assumptions about

a. flow of goods or costs depending on the method

b. flow of values
c. flow of costs
d. flow of goods

207. Crown Asia Compounders Corp

Incorporated in 1989 as Crown Asia Compounders Corp., the company is

currently engaged in the production of plastic compounds, pipes and related
products for the construction and telecommunication industries, particularly
the manufacture of plastic compounds, polyvinyl chloride (PVC) pellets and
plastic pipes.

Over the past three years, the company sold 58.06% of its compounds to the
local market, and the rest to the export market. Pipe products, on the other
hand, are purely sold domestically.

As of Jan. 31, 2015, Crown Asia has a total of 245 employees, and an operating
capacity of 15,000 million tonnes per annum (MPTA) for its compounds
business and 8,500 MTPA for its pipes business. It is controlled by the
Villanueva and Perez families, collectively owning 74.95% of the firm after the
offering.

Crown Asia’s net income to rose by an annual 31.42% to P65.38 million in 2014,
while revenues inched up by 6.1% to P850.74 million in the same period.
Crown Asia plans to sell 158 million primary common shares at P1.41 apiece
from April 10 to April 17, it said in its prospectus filed with the SEC.

The Securities and Exchange Commission (SEC) approved the transaction

during its en banc meeting.

Of the net proceeds, P66.2 million will be used for construction of

polypropylene random copolymer (P-PR) and high-density polyethylene (HDPE)
manufacturing plant and warehouse as well as purchase of equipment; P43.8
million for debt retirement; P25 million for modernization of existing
compounds and pipes plants; and P68.99 million for working capital purposes.
The par value per common share is P1.00 apiece.

Abacus Capital & Investment Corp. was appointed as the issue manager and
underwriter.
At the completion of the offer the offer shares will comprise 25.05% of the
company’s issued and outstanding shares. Of the offer shares, 20% will be
allocated to the Philippine Stock Exchange trading participants, 10% to local
small investors, and the remaining 70% to the general public.

All of the Offer shares shall be primary shares to be taken from the existing
authorized capital stock of the company. No secondary shares shall form part of
the Offer.

Infinity Inc.
The Villanueva family also owns a substantial ownership of Infinity Inc, a
trading company.

The following information was taken from the ledger of Infinity, Inc.

Prior period adjustment credit to retained earnings 5,000

Gain on sale of PPE 21,000
Cost of goods sold 380,000
Income tax expense (saving):
Continuing operations 32,000
Discontinued operations 8,000
Preference share, 8%, P100 par 500 shares issued 50,000
Dividends 16,000
Retained earnings, beginning, as originally reported 103,000
Treasury shares, ordinary (5,000 shares at cost) 25,000
Selling expenses 78,000
Ordinary share, no par, 45,000 shares issued 180,000
Sales revenue 620,000
Interest expense 30,000
Income from discontinued operations 20,000
Loss due to lawsuit 11,000
General expenses 62,000

Maine Company
The Perez family also owns Maine Company, a company that operates a chain of
restaurants.

Maine Company
Consolidated Statements of Income
Years Ended December 31, 2016 and 2015
(in millions, except per share data) 2016 2015
Revenues
Sales by company-related restaurants 13,200 11,100
Revenues from franchised and affiliated 4,500 3,700
restaurants
Total revenues 17,700 14,800
Food and paper (cost of goods sold) 3,300 3,108
Payroll and employee benefits 3,200 3,000
Occupancy and other operating expenses 2,900 2,800
Franchised restaurants - occupancy expenses 949 850
Selling, general, and administrative expenses 1,820 1,730
Other operating expense, net 510 855
Total operating expenses 12,679 12,343
Operating income 5,021 2,457
Interest expense 370 345
Other nonoperating expense, net 140 168
Income before income taxes 4,511 1,944
Income tax expense 1,820 820
Net income 2,691 1,124
Per ordinary share basic:
Net income 2.69 1.15
Dividends per ordinary share 0.50 0.24

Maine Company
Consolidated Balance Sheet
December 31, 2016 and 2015
(in millions, except per share data 2016 2015
Assets
Current assets
Cash and cash equivalents 690 455
Accounts and notes receivable 780 840
Inventories 140 120
Prepaid expense and other current assets 580 440
Total current assets 2,190 1,855
Other assets
Investment in affiliates 1,150 1,055
Goodwill, net 1,780 1,590
Miscellaneous 990 1,100
Total other assets 3,920 3,745
Property and equipment
Property and equipment, at cost 28,800 26,500
Accumulated depreciation and amortization (8,850) (7,900)
Net property and equipment 19,950 18,600
Total assets 26,060 24,200
Liabilities and shareholders’ equity
Current liabilities
Accounts payable 520 675
Income taxes 70 14
Other taxes 230 180
Accrued interest 189 196
Accrued restructuring and restaurant closing 110 385
costs
Accrued payroll and other liabilities 890 795
Current maturities of long-term debt 365 305
Total current liabilities 2,374 2,550
Long-term debt 8,700 9,500
Other long-term liabilities and minority interests 690 520
Deferred income taxes 1,005 1,015
Shareholders’ equity
Preference shares, no par value, authorized 140
million shares, issued, none - -
Ordinary shares, P0.01 par value, authorized 2
billion shares; issued 1,400 million shares 14 14
Additional paid-in capital 1,786 1,662
Unearned ESOP compensation (85) (101)
Retained earnings 21,741 19,550
Accumulated other comprehensive income (loss) (815) (1,570)
Ordinary shares in treasury, at cost; 400 and 420
million shares (9,350) (8,940)
Total shareholders’ equity 13,291 10,615
Total liabilities and shareholders’ equity 26,060 24,200

Manor Corporation
Manor Corporation is a joint venture between the Villanueva and Perez families.
The company reported the following income statement and comparative
balance sheets, along with transaction data for 2016.

Manor Corporation
Income Statement
Year Ended December 31, 2016
Sales revenue 662,000
Cost of goods sold 560,000
Gross profit 102,000
Operating expenses
Salary expense 46,000
Depreciation expense-equipment 7,000
Amortization expense - patent 3,000
Rent expense 2,000
Total operating expenses 58,000
Income from operations 44,000
Other items:
Loss on sale of equipment (2,000)
Income before income tax 42,000
Income tax expense 16,000
Net income 26,000

Manor Corporation
Comparative Balance Sheets
December 31, 2016 and 2015
2016 2015
Assets
Current assets
Cash and cash equivalents 19,000 3,000
Accounts receivable 22,000 23,000
Inventories 34,000 31,000
Prepaid expenses 1,000 3,000
Total current assets 76,000 60,000
Long-term investments 18,000 10,000
Equipment, net 67,000 52,000
Patent, net 44,000 10,000
Total Assets 205,000 132,000

Liabilities
Current liabilities
Accounts payable 35,000 26,000
Accrued liabilities 7,000 9,000
Income tax payable 10,000 10,000
Total current liabilities 52,000 45,000
Long-term note payable 44,000 -
Bonds payable 40,000 53,000
Owner’s equity
Share capital 52,000 20,000
Retained earnings 27,000 19,000
Less: Treasury shares (10,000) (5,000)
Total liabilities and equity 205,000 132,000

Transaction data for 2016:

Purchase of equipment 98,000

Payment of cash dividends 18,000
Issuance of shares to retire bonds payable 13,000
Purchase of long-term investment 8,000
Purchase of treasury shares 5,000
Issuance of long-term note payable to purchase patent 37,000
Issuance of long-term note payable to borrow cash 7,000
Issuance of shares for cash 19,000
Sale of equipment (book value, P76,000) 74,000

Maine’s inventory turnover for 2016 was

a. 61 times
b. 25 times
c. 17 times
d. 72 times
 SOLUTION:

(P3,300/(P140 + P120)/2) = 25 times

208. Merchandise inventory at the end of the year was understated. Which of the
following statements correctly states the effect of the error?

a. merchandise inventory reported on the balance sheet is overstated

b. net income is understated
c. cost of merchandise sold is understated
d. net income is overstated

209. Jojy Corporation encounters the following product cost situations as part of
its quarterly reporting:

 It only conducts inventory counts at the end of the 2nd quarter and end of
the fiscal year. Its typical gross profit is 30%. The actual gross profit at the
end of the 2nd quarter is determined to have been 32% for the first 6
months of the year. The actual gross profit at the end of the year is
determined to have been 29% for the entire year.
 It determines that, at the end of the 2nd quarter, due to peculiar market
conditions, there is a net realizable value adjustment to certain inventory
required in the amount of P90,00. Jojy expects that this market anomaly will
be corrected by year-end, which indeed does occur in late December.
 It suffers a decline of P65,000 in the market value of its inventory during the
third quarter. This inventory value increases by P75,000 in the 4th quarter.
 It suffers a clearly temporary decline of P10,000 in the market value of a
specific part of its inventory in the first quarter, which recovers in the 2nd
quarter.

The sales of the Company are as follows:

1st Quarter 10,000,000

2md Quarter 8,500,000
3rd Quarter 7,200,000
4th Quarter 11,800,000

How much is the total cost of goods sold in the 2nd quarter?

a. 7,010,000
b. 5,660,000
c. 6,050,000
d. 7,000,000

SOLUTION:

1st Qrtr 2nd Qrtr 3rd Qrtr 4th Qrtr Full Year
Sales 10,000,0 8,500,00 7,200,00 11,800,0 37,500,0
00 0 0 00 00
 COS % 70% - 70% - -
COS, GP method 7,000,00 - 5,040,00 - -
0 0
COS based on actual - 5,580,0 - 9,005,0 26,625,
count 00 (1) 00 (2) 000
Temporary net
realizable value decline
in specific inventory (3) - 90,000 - (90,000) -
Decline in inventory
value with subsequent - - 65,000 (65,000) -
increase (4)
Temporary decline in
inventory value (5) 10,000 (10,000) - - -
Total COS 7,010,00 5,660,00 5,105,00 8,850,00 26,625,0
0 0 0 0 00

(1) 18,000,000 x (1-32% gross margin) - 7,000,000 (1st quarter cost of sales) (2)
37,500,000 sales x (1-29% gross margin) - 17,620,000 (Quarters 1-3 cost of
sales) (3) Eventhough anticipated to recover, the NRV decline must be
recognized. (4) Full recognition of market value decline, followed by recognition
of market value increase, but only in the amount needed to offset the amount of
the initial decline. (5) No deferred recognition to temporary decline in value.

210. The management of Michael, Inc has engaged you to assist in the
preparation of year-end financial statements. You are told that on November 30,
the correct inventory level was 145,730 units. During the month of December,
sales totaled 138,630 units including 40,000 units shipped on consignment to
Matthew Corp. A letter received from Matthew indicates that as of December
31, it has sold 15,200 units and was still trying to sell the reminder.A review of
the December purchase orders to various suppliers shows the following:

PO Date Inv. Date Qty in Date Date Terms

units shipped received
12/31/20 1/2/2013 4,200 1/2/2013 1/5/2013 FOB Destination
12
12/5/201 1/2/2013 3,600 12/17/20 12/22/20 FOB Destination
2 12 12
12/6/201 1/3/2013 7,900 1/5/2013 1/7/2013 FOB Shipping point
2
12/18/20 12/20/12 8,000 12/29/20 1/2/2013 FOB Shipping point
12 12
12/22/20 1/5/2013 4,600 1/4/2013 1/6/2013 FOB Destination
12
12/27/20 1/7/2013 3,500 1/5/2013 1/7/2013 FOB Destination
12

Michael, Inc uses the passing of legal title for inventory recognition.

How many units should be included in Michael’s Inc’s inventory at December

31, 2012?
 a. 39,900 units
b. 18,700 units
c. 43,500 units
d. 47,700 units

211. The management of Michael, Inc has engaged you to assist in the
preparation of year-end financial statements. You are told that on November 30,
the correct inventory level was 145,730 units. During the month of December,
sales totaled 138,630 units including 40,000 units shipped on consignment to
Matthew Corp. A letter received from Matthew indicates that as of December
31, it has sold 15,200 units and was still trying to sell the reminder.A review of
the December purchase orders to various suppliers shows the following:

PO Date Inv. Date Qty in Date Date Terms

units shipped received
12/31/20 1/2/2013 4,200 1/2/2013 1/5/2013 FOB Destination
12
12/5/201 1/2/2013 3,600 12/17/20 12/22/20 FOB Destination
2 12 12
12/6/201 1/3/2013 7,900 1/5/2013 1/7/2013 FOB Shipping point
2
12/18/20 12/20/12 8,000 12/29/20 1/2/2013 FOB Shipping point
12 12
12/22/20 1/5/2013 4,600 1/4/2013 1/6/2013 FOB Destination
12
12/27/20 1/7/2013 3,500 1/5/2013 1/7/2013 FOB Destination
12

Michael, Inc uses the passing of legal title for inventory recognition.

How many units were sold during December?

a. 153,830 units
b. 98,630 units
c. 138,630 units
d. 113,830 units

212. PAS 2 requires disclosure of the following:

I. Details of reversals of prior year write-downs

II. Separate disclosure of the carrying amount of inventories carried at cost and
those carried at net realisable value
III. The accounting policy adopted by the entity in relation to inventory
valuation
IV. The carrying amount of inventory by class

a. I, II, III and IV

b. I, II and III only
c. II, III and IV only
 d. II and III only

213. On 30 September 2020, Razors closing inventory was counted and valued at
its cost of P1 million. Some items of inventory which had cost P210,000 had
been damaged in a flood (on 15 September 2020) and are not expected to
achieve their normal selling price which is calculated to achieve a gross profit
margin of 30%. The sale of these goods will be handled by an agent who sells
them at 80% of the normal selling price and charges Razor a commission of
25%.

At what value will the closing inventory of Razor be reported in its statement of
financial position as at 30 September 2020?

a. 180,000
b. 790,000
c. 1,000,000
d. 970,000

SOLUTION:

The normal selling price of damaged inventory is P300,000 (210/70%). This will
now sell for P240,000 (300,000 x 80%), and have a NRV of P180,000 (240 - (240
x 25%)). The expected loss on the inventory is P30,000 (210 cost - 180 NRV)
and therefore the inventory should be valued at P970,000 (1,000 - 30).

214. Jojy Corporation encounters the following product cost situations as part of
its quarterly reporting:

 It only conducts inventory counts at the end of the 2nd quarter and end of
the fiscal year. Its typical gross profit is 30%. The actual gross profit at the
end of the 2nd quarter is determined to have been 32% for the first 6
months of the year. The actual gross profit at the end of the year is
determined to have been 29% for the entire year.
 It determines that, at the end of the 2nd quarter, due to peculiar market
conditions, there is a net realizable value adjustment to certain inventory
required in the amount of P90,00. Jojy expects that this market anomaly will
be corrected by year-end, which indeed does occur in late December.
 It suffers a decline of P65,000 in the market value of its inventory during the
third quarter. This inventory value increases by P75,000 in the 4th quarter.
 It suffers a clearly temporary decline of P10,000 in the market value of a
specific part of its inventory in the first quarter, which recovers in the 2nd
quarter.

The sales of the Company are as follows:

1st Quarter 10,000,000

2md Quarter 8,500,000
3rd Quarter 7,200,000
4th Quarter 11,800,000
 How much is the total cost of goods sold in the 1st quarter?

a. 5,600,000
b. 7,010,000
c. 7,050,000
d. 7,000,000

SOLUTION:

1st Qrtr 2nd Qrtr 3rd Qrtr 4th Qrtr Full Year
Sales 10,000,0 8,500,00 7,200,00 11,800,0 37,500,0
00 0 0 00 00
COS % 70% - 70% - -
COS, GP method 7,000,00 - 5,040,00 - -
0 0
COS based on actual - 5,580,0 - 9,005,0 26,625,
count 00 (1) 00 (2) 000
Temporary net
realizable value decline
in specific inventory (3) - 90,000 - (90,000) -
Decline in inventory
value with subsequent - - 65,000 (65,000) -
increase (4)
Temporary decline in
inventory value (5) 10,000 (10,000) - - -
Total COS 7,010,00 5,660,00 5,105,00 8,850,00 26,625,0
0 0 0 0 00

(1) 18,000,000 x (1-32% gross margin) - 7,000,000 (1st quarter cost of sales) (2)
37,500,000 sales x (1-29% gross margin) - 17,620,000 (Quarters 1-3 cost of
sales) (3) Eventhough anticipated to recover, the NRV decline must be
recognized. (4) Full recognition of market value decline, followed by recognition
of market value increase, but only in the amount needed to offset the amount of
the initial decline. (5) No deferred recognition to temporary decline in value.

215. In recording the cost of merchandise sold for cash, based on data available
from perpetual inventory records, the journal entry is

a. debit Cost of Merchandise Sold; credit Sales

b. debit Accounts Receivable; credit Sales
c. debit Merchandise Inventory; credit Cost of Merchandise Sold
d. debit Cost of Merchandise Sold; credit Merchandise Inventory

216. Which of the following current year events would explain a fall in a
companys operating profit margin compared to the previous year?

a. A change from the amortization of development costs being included in cost

of sales to being included in administrative expenses
b. A decision to value inventory on the average cost basis from the first in first
out (FIFO) basis. Unit prices of inventory had risen during the current year
c. An increase in gearing leading to higher interest costs
d. A reduction in the allowance for uncollectible receivables

SOLUTION:

Is correct as use of average cost gives a higher cost of sales (and in turn lower
operating profit) than FIFO during rising prices.