ACC 102.key Answer - Quiz 1.inventories

Quiz 1
Inventories
A. In your audit of Jose Oliva Company, you find that a physical inventory on Dec. 31, 2014,
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.
1. Merchandise of P61,000 which is held by Oliva on consignment. The consignor is the
Max Suzuki Company.
2. Merchandise costing P38,000 which was shipped by Oliva F.O.B. destination to a
customer on Dec. 31, 2014. The customer was expected to receive the merchandise on
Jan. 6, 2015.
3. Merchandise costing P46,000 which was shipped by Oliva F.O.B. shipping point to a
customer on Dec. 29, 2014. The customer was scheduled to receive the merchandise on
Jan. 2, 2015.
4. Merchandise costing P83,000 shipped by a vendor F.O.B. destination on Dec. 30, 2014,
and received by Oliva on Jan. 4, 2015.
5. Merchandise costing P51,000 shipped by a vendor F.O.B. shipping point on Dec. 31,
2014, and received by Oliva on Jan. 5, 2015.
Required:
Based on the above information, calculate the amount that should appear on Oliva’s statement of
financial position at Dec. 31, 2014, for inventory. Ans. P530,000.00
Merchandise Inventory, per physical count 441,000.00

Merchandise in transit, sold FOB Destination 38,000.00
Merchandise in transit, purchased FOB Shipping Point 51,000.00
Merchandise inventory end, adjusted balance 530,000.00
B. Some of the transactions of Torres Company during August are listed below. Torres uses the
periodic inventory method.
August 10 Purchased merchandise, P12,000, terms 2/10, n/30.
13 Returned part of the purchase of August 10, P1,200, and received
credit on account,
15 Purchased merchandise on account, P16,000, terms 1/10, n/60.
25 Purchased merchandise on account, P20,000, terms 2/10, n/30.
28 Paid invoice of August 15 in full.
1. Assuming that purchases are recorded at gross amounts and that discounts are to be
recorded when taken, compute the net purchases for the month of August. Ans. P46,800
Purchases
Aug 10 12,000.00
Aug 15 16,000.00
Aug 25 20,000.00 48,000.00
Purchase Returns 1,200.00
Net Purchases 46,800.00
2. Assuming that purchases are recorded at net amounts and that discounts lost are treated as
operating expenses, compute the net purchases for the month of August. Ans. P46,024
Purchases
Aug 10, net of 2% discount 11,760.00
Aug 15, net of 1% discount 15,840.00
Aug 25, net of 2% discount 19,600.00 47,200.00
Purchase Returns, net of 2% discount 1,176.00
Net Purchases 46,024.00
C. On June 1, 2014, Pitt Corp. sold merchandise with a list price of P5,000 to Burr on account.
Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was
made FOB shipping point. Pitt prepaid P200 of delivery costs for Burr as an accommodation. On
June 12, 2014, Pitt received from Burr a remittance in full payment amounting to ___________.
Ans. P2,944
List Price 5,000.00

Trade discount
30% x 5,000 1,500.00
20% x (5,000-1,500) 700.00 2,200.00
Invoice Price 2,800.00
Freight, reimbursement by Burr(buyer) 200.00
Purchase discount ( 2,800 x 2%) -56.00
Payment by Burr to Pitt on June 12 2,944.00
D. The following information pertained to Azur Co. for the year:

Purchase P102,800
Purchase discounts 10,280
Freight in 15,240
Freight out 5,140
Beginning inventory 30,840
Ending inventory 20,560
What amount should Azur report as cost of goods sold for the year?
Ans. P118,040
Beginning inventory 30,840.00

Add: Net Purchases
Purchases 102,800.00
Freight in 15,240.00
Purchase Discounts -10,280.00 107,760.00
Cost of Goods Available for sale 138,600.00
Less: Ending Inventory 20,560.00
Cost of Goods Sold 118,040.00
E. On Dec. 15, 2014, Flanagan purchased goods with an invoice price of P100,000. The
terms were FOB shipping point. Additional costs incurred by Flanagan in connection
with the purchase and delivery of the goods were as follows:
Normal freight charges P3,000
Handling costs 2,000
Insurance on shipment 500
Abnormal freight charges for express shipping 1,200
The goods were received on Dec. 17, 2014. What is the amount that Flanagan should
charge to (a) product costs and to (b) period costs?
Ans. P 105,500 and P1,200
Product Costs (Inventoriable Costs)

Purchase price 100,000.00
Normal freight charges 3,000.00
Handling costs 2,000.00
Insurance on shipment 500.00
Total 105,500.00
Period Costs (Operating Expenses)

Abnormal freight charges 1,200.00
When using a perpetual inventory system,

a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.
Ans. D
Which of the following items should be included in a company's inventory at the balance sheet
date?
a. Goods sold to a customer which are being held for the customer to call for at his or
her convenience.
b. Goods received from another company for sale on consignment.
c. Goods in transit which were purchased f.o.b. destination.
d. None of these.
Ans. A
Valuation of inventories requires the determination of all of the following except

a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other companies.
d. the cost flow assumption to be adopted.
Ans. C
The accountant for the Orion Sales Company is preparing the income statement for 2007 and
the balance sheet at December 31, 2007. Orion uses the periodic inventory system. The
January 1, 2007 merchandise inventory balance will appear
a. only in the cost of goods sold section of the income statement.
b. only as an asset on the balance sheet.
c. as a deduction in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
d. as an addition in the cost of goods sold section of the income statement and as a
current asset on the balance sheet.
Ans. A
Costs which are inventoriable include all of the following except

a. costs that are directly connected with the bringing of goods to the place of business
of the buyer.
b. costs that are directly connected with the converting of goods to a salable condition.
c. buying costs of a purchasing department.
d. selling costs of a sales department.
Ans.D
The failure to record a purchase of merchandise on account even though the goods are properly
included in the physical inventory results in
a. an overstatement of assets and net income.
b. an understatement of assets and net income.
c. an understatement of cost of goods sold and liabilities and an overstatement of
assets.
d. an understatement of liabilities and an overstatement of owners' equity.
Ans. D
Goods on consignment are

a. included in the consignee's inventory.
b. recorded in a Consignment Out account which is an inventory account.
c. recorded in a Consignment In account which is an inventory account.
d. all of these
Ans. B
Which of the following is correct?

a. Selling costs are product costs.
b. Interest costs for routine inventories are product costs.
c. Manufacturing overhead costs are product costs.
d. All of these.
Ans. C

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Quiz 1

Merchandise Inventory, per physical count 441,000.00

List Price 5,000.00

D. The following information pertained to Azur Co. for the year:

Beginning inventory 30,840.00

Product Costs (Inventoriable Costs)

Period Costs (Operating Expenses)

When using a perpetual inventory system,

Valuation of inventories requires the determination of all of the following except

Costs which are inventoriable include all of the following except

Goods on consignment are

Which of the following is correct?

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