CHAPTER 9 - INVENTORIES

TRUE OR FALSE QUESTIONS

1. The cost flow assumption adopted must be consistent with the physical movement of the
goods. F
2. PFRS requires reporting inventory at net realizable value, even if, above cost, whenever
there is a controlled market with a quoted price applicable to all quantities. F
3. In the retail inventory method, abnormal shortages are deducted from both the cost
and retail and reported as a loss. T
4. If both purchases and ending inventory are overstated by the same amount, net income
is not affected. T
5. A disadvantage of the gross profit method is that it uses past percentages in determining
the markup. T
6. In all cases when FIFO is used, the cost of. goods sold would be the same whether a
perpetual or periodic system is used. T
7. If the contract price on a noncancelable purchase commitment exceeds the market
price, the buyer should record any expected losses on the commitment in the period in
which the market decline takes place. T
8. A manufacturing concern would report the cost of units only partially processed as
inventory in the statement of financial position. T
9. Purchase Discounts Lost is a financial expense and is reported in the “other expenses
and losses" section of the income statement. T
10. Title to goods cannot be transferred to the buyer before shipment occurs. F
11. Inventories are classified in the statement pf financial position as current assets. T
12. When using a perpetual inventory system, freight charges on goods purchased are debited
to Freight-ln. F
13. In the retail inventory method, the term markup means a markup on the original cost of
an inventory item. F
14. If ending inventory is understated, then net income is understated. T
15. In a period of falling prices, the use of FIFO inventory cost flow method would typically
result in the highest cost of goods sold. T
16. If a supplier ships goods f.o.b destination, title passes to the buyer when the supplier
delivers the goods to the common carrier. F
17. The purchase price of inventories includes Value Added Tax paid by the buyer. F
18. The buyer owns the goods in transit under FOB shipping points. T
19. Under freight collect, freight is paid advance by the seller before shipment. F
20. Inventories include only those that are readily available for sale in the ordinary course of
business. F
21. PFRS prohibits the use of LIFO cost flow assumptions. T
22. Purchase of inventory for cash will not change the total assets. T
 23. Reversal of inventory write-down' is prohibited. F
24. Freight incurred by the consignor in delivering the consigned goods to the consignee
forms part of the cost of inventories. T
25. Commodities of broker-traders are measured at fair value less cost of disposal. T
26. The gross profit method assumes that the relationship between selling price and cost of
goods sold is similar to prior years. T
27. When goods are sold on an installment plan, the seller retains title and continues to
include them on its balance sheet until full payment has been received. F
28. Sales staff commission is deducted when valuing inventories at LCNRV. T
29. Storage cost is included in the cost of inventory only when storage cost is necessary in
bringing the inventory to its intended condition and location. T
30. Freight charges on goods purchased are considered a period cost and therefore are not
part of the cost of the inventory. F

CHAPTER 9 - INVENTORIES

FINANCIAL ACCOUNTING THEORY QUESTIONS

1. Inventories encompass all of the following, except.
a. merchandise purchased by a retailer.
b. land and other property not held for sale.
c. finished goods produced.
d. materials and supplies awaiting use in the production process.

2. The costs of conversion of inventories include all of the following, except

a. costs directly related to the units of production, such as direct labor.
b. systematic allocation of fixed production overhead.
c. systematic allocation of variable production overhead.
d. systematic allocation of administrative overhead.

3. Which of the following is least likely to be included in determining the cost of inventory?
a. Interest cost for amounts borrowed to finance the purchase of inventory
b. Purchasing costs
c. Receiving and unpacking costs
d. Freight costs

4. 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.
5. A company using a periodic inventory system neglected to record a purchase of merchandise
on account at year-end. This merchandise, however, was correctly included in the year-end
physical count. How will these errors affect inventory at year-end and cost of goods sold for the
year?
Inventory Cost of goods sold
a. No effect Understate
b. No effect Overstate
c. Understate Understate
d. Understate No effect

6. Goods in transit which are shipped with terms FOB shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. excluded from the inventory of the buyer.

7. Which of the following inventory costing methods report most closely the current cost of
inventory on the statement of financial position?
a. first-in, first-out method
b. Specific identification method
c. weighted average method
d. last-in, first-out method

8. Which of the following is a product cost as it relatives to inventory?

a. Selling cost
b. Interest cost
c. Raw materials
d. Abnormal spoilage

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

a. The carrying amount of inventories pledged as security for liabilities.
b. The events or circumstances that led to reversal of a write-down of inventories.
c. The accounting policy adopted in measuring inventories, including the cost formula used.
d. The suggested retail price of inventories stated on the face of the statement of financial
position.

10. For the past four years, Toy Company has used weighted average method for inventory
valuation. The inventory value at the end of Year 4 was P85,OOO, but would have been P60,500
if FIFO method had been used throughout the four-year period. If Toy Company had used FIFO
for the entire four years, profit before income tax would be
a. P24,500 more over the four-year period.
b. P24,500 less over the four-year period.
c. P24,500 more in year 4.
 d. P24,500 less in year 4.

11. Which of the following pairs of inventory terms would not usually go together?
a. Periodic inventory system and Freight in account
b. Perpetual inventory system and Cost of goods sold account
c. Gross method and Purchase discount account
d. Net method and Purchase discount account

12. Net realizable value is

a. acquisition cost plus costs to complete and sell.

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

13. A situation where the seller actually paid the freight charges but is not legally. responsible
for the same.
a. FOB destination, freight prepaid
b. FOB destination, freight collect
c. FOB shipping point, freight prepaid
d. FOB shipping point, freight collect

14. The costing method that is appropriate for inventories that are segregated for a specific
project and inventories that are not ordinarily interchangeable is
a. specific identification method.
b. standard cost
c. weighted average method.
d. moving average method.

15. If a merchandise company ended a period with a larger inventory than it had at the beginning
of the period, which of the following statements must be true?
a. The cost of goods sold was greater than net purchases.
b. Profit was greater than gross profit on sales.
c. The cost of goods sold was lesser than net purchases.
d. The cost of goods available for sale was smaller than the cost of goods sold.

16. The gross profit method of estimating inventory would not be useful when
a. a periodic system is in use and inventories are required for interim statements.
b. inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data
required for inventory valuation are not available.
c. the validity of inventory obtained by physical count is being established.
d. the relationship between gross profit and sales continues to be Unstable over time.
17. On June 15, 2021, Rod Company accepted delivery of merchandise that it purchased on
account. As of June 30, Rod had not recorded the transaction nor included the merchandise in its
inventory. The effect of this on its statement of financial position for June 30, 2021 would be

a. assets and shareholders' equity were overstated but liabilities were not affected.
b. shareholders' equity was the only item affected by the omission.
c. assets, liabilities, and shareholders' equity were understated.
d. assets and liabilities are understated but shareholders' equity is not affected.
18. Which statement is not true about the gross profit method of inventory valuation?

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

b. It may be used to estimate inventories for annual statements.
c. It may be used by auditors.
d. It may be used to estimate inventory pilferages.

19. Costs that are incurred in bringing the inventories to their present location and condition are
capitalized as cost of inventories and these include
a. costs of designing products for specific customers.
b. abnormal amount of wasted material, labor and production costs.
c. storage cost not necessary in the production process before a further production stage.
d. selling costs.
20. PAS 2 Inventories requires that the lower of cost and net realizable value shall be applied
a. to total inventories as a whole.
b. to each Class of inventory.
c. on the basis of industry segment.
d. on an item-by-item basis.
21. An item of inventory purchased this period for P3,000 has been incorrectly written down to
its current replacement cost of P2,000. It sells during the following period for P6,000, its normal
selling price, with disposal costs of P600 and normal profit of P2,400. Which of the following
statements is not true?
a. The cost of sales of the following year will be understated.
b. The current year's income is understated.
c. The closing inventory of the current year is understated.
d. Income of the following year will be understated.

22. If a unit of inventory has declined in value below original cost, but the market value exceeds
net realizable value, the amount to be used for purposes of inventory valuation is
a. net realizable value.
b. original cost.
c. market value.
d. net realizable value less a normal profit margin.
23. In 2021, IM Manufacturing signed a contract with a supplier to purchase raw materials in
2022 for P800,000. Before the December 31, 2021 balance sheet date, the market price for these
materials dropped to P710,000. The journal entry to record this situation at December 31, 2021
will result in a credit that should be reported
a. as a valuation account to Inventory on the balance sheet.
b. as a current liability.
c. as an appropriation of retained earnings.
d. on the income statement.

24. At the end of the fiscal year, Mars Airlines has an outstanding non-cancellable purchase
commitment for the purchase of 100,000 gallons of jet fuel at a price of P6.30 per gallon for
delivery during the coming summer. The company prices its inventory at the LCNRV. If the
market price for jet fuel at the end of the year is P6.70, how would this situation be reflected in
the annual financial statements?
a. Record unrealized gains of P40,000 and disclose the existence of the purchase
commitment.
b. No impact.
c. Record unrealized losses of P40,000 and disclose the existence of the purchase
commitment.
d. Disclose the existence of the purchase commitment.

25. How is a significant amount of consignment inventory reported in the

statement of financial position?
a. The inventory is reported separately on the consignor's balance sheet.
b. The inventory is combined with other inventory on the consignor's
balance sheet.
c. The inventory is reported separately on the consignee's balance sheet.
d. The inventory is combined with other inventory on the consignee's
balance sheet.

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

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

27. Which of the following inventories carried by a manufacturer is similar to the merchandise
inventory of a retailer?
 a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.

28. The accountant for the Bryan Manufacturing Company is preparing the income statement for
2021 and the balance sheet at December 31, 2021. Bryan uses the periodic inventory system. The
January 1, 2021 merchandise inventory balance will appear
a. only as an asset on the balance sheet.
b. only in the cost of goods sold section of the income statement.
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.

29. If the beginning inventory for 2021 is overstated, what is the effect of this
error on the following:
Cost of Goods Sold Net Income Assets at Dec. 31, 2022
a. Overstatement Understatement Overstatement
b. Overstatement Understatement No Effect
c. Understatement Overstatement Overstatement
d. Understatement Overstatement Overstatement

30. Sherralyn Karen Co. received merchandise on consignment. As of March 31, Sherralyn
Karen had recorded the transaction as a purchase and included the goods in inventory. The effect
of this on its financial statements for March 31would be
a. no effect.
b. net income was correct and current assets and current liabilities were overstated.
c. net income, current assets, and current liabilities were overstated.
d. net income and current liabilities were overstated.

31. What is the effect of a P30,000 overstatement of last year's inventory on

current year's ending retained earnings balance?
a. Understated by P30,000.
b. No effect.
c. Overstated by P30,000.
d. Need more information to determine

32. Which of the following is a period cost?

a. Labor costs
 b. Freight in
c. Production costs
d. Selling costs

33. Which of the following is correct?

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

34. Which of the following types of interest cost incurred in connection with the purchase or
manufacture of inventory should be capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects such as ships or real estate
projects
c. Interest incurred on notes payable to vendors for routine purchases made on a repetitive
basis
d. All of these should be capitalized.

35. The use of a Discounts Lost account implies that the recorded cost of a
purchased inventory item is its
a. invoice price.
b. invoice price plus the purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.

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

37. 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.
38. In a period of rising prices, the inventory method which tends to give the
highest reported net income is
a. base stock.
b. first-in, first-out.
c. last-in, first-out.
d. weighted-average.

Item Nos. 39 - 40 are based on the following:

During 2021, Derek Corporation transferred inventory to Ramsey Corporation and agreed to
repurchase the merchandise early in 2022. Ramsey then used the inventory as collateral to
borrow from PRIA Bank, remitting the proceeds to Derek. In 2022 when Derek repurchased the
inventory, Ramsey used the proceeds to repay its bank loan.

39.This transaction is known as a(n)

a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.

40. On whose books should the cost of the inventory appear at the December 31, 2021 statement
of financial position?
a. Derek Corporation
b. Ramsey Corporation
c. PRIA Bank
d. Ramsey Corporation, with Derek making appropriate note disclosure of
the transaction
 PRACTICAL FINANCIAL ACCOUNTING

A. Venice Merchandising Company reported an inventory of P345,600 at December 31,

2021. You discovered that the inventory amount, among others, included the following:
● Goods costing P21,600 ordered by a customer on December 27, 2021,
shipped FOB destination on December 29, 2021 and received by the
customer at their warehouse on January 5, 2022.
● Goods costing P14,800 on December 25, 2021 shipped to Venice FOB
destination and received January 2, 2022.
● Goods costing P19,200 held on consignment.
● Goods costing P12,400 ordered from a supplier on December 26, 2021,
shipped FOB shipping point on December 28 but had not been received
by December 31.
● Goods costing P31,500 shipped by a vendor FOB seller on December 31, 2021 and
received by Venice on January 5, 2022.
● Goods costing P12,500 which was shipped FOB destination to a customer on December
29, 2021. The goods are still in transit and the customer expected to receive the
merchandise on January 5, 2022.
● Goods costing P40,000 shipped by a vendor FOB destination on
December 29, 2021. The related invoice was received and recorded on
December 31, 2021. The goods were received by Venice on January 4,
2022.

(1) What is the correct amount of inventory that should be reported by Venice in its December
31, 2021 statement of financial position?
a. P311,600
b. P290,800
c. P271,600
d. P259,100

B. The Berkeley Company's physical inventory on December 31, 2021 showed that merchandise
with a cost of P364,000 was on hand at that date. Excluded from this amount are the following
items:
● Merchandise costing P30,000 held by Berkeley on consignment.
● Merchandise costing P45,000 shipped FOB shipping point to a customer on December 29
2021. The goods are expected to be received by the customer on January 4, 2022.
● Merchandise costing P62,000 shipped FOB destination to a customer on December 31,
2021. The goods were expected to be received by the
 customer on January 6, 2022.
● Merchandise costing P78,000 shipped by a vendor FOB destination on
December 30, 2021 and received by Berkeley on January 5, 2022.
● Merchandise costing P54,000 shipped by a vendor FOB seller on December 31, 2021 and
received by Berkeley on January 3, 2022.

(2) What is the correct inventory that should appear in Berkeley's statement of financial position
at December 31, 2021?
a. P603,000
b. P504,000
c. P487,000
d. P480,000

C. Grass Company's inventory at December 31, 2021 was P570,000 based on a physical count of
goods priced at cost and before any necessary year-end adjustments relating to the following:
● Included in the physical count were goods billed to a customer FOB
shipping point on December 31, 2021. These goods had a cost of P15,000
and were picked up by the carrier on January 10, 2017.
● Goods shipped FOB shipping point on December 28, 2021 from a vendor to Grass
Company were received on January 4, 2022. The invoice cost was P25,000.
● Goods shipped from Grass Company to customer, terms FOB destination, are still in
transit at December 31, 2021. The goods, with a selling price of P120,500, were received
by the customer on January 5, 2022. The company sells goods at a 25% markup on cost.

(3) What amount should Grass Company report as inventory in its December 31, 2021 statement
of financial position?
a. P715,500
b. P700,500
c. P691,400
d. P676,400

D. The inventory on hand on December 31, 2021 for Mezza Company is valued at a cost of
P1,920,000. The corporation's policy on its selling price is 150% of cost. The following items
were not included in the inventory:
● Purchases of goods still in transit, shipped FOB shipping point, with price of P150,000.
Freight charge of P25,000 was prepaid by the supplier.
● Goods held on consignment by Mezza at a sales price of P100,000,
excluding a 20% commission on the sales price. Freight paid by Mezza is P10,000.
● Goods sold in transit FOB destination with invoice price of P245,000
which includes freight charge of P20,000 to deliver the goods.
 ● Purchases of goods still in transit FOB destination with invoice of
P300,000. Freight cost, P30,000.
● Goods out on consignment with sales price of P180,000. Shipping cost to consignee is
P15,000.

(4) What is the correct amount of inventory at December 31, 2021?

a. P2,380,000
b. P2,355,000
c. P2,710,000
d. P2,365,000

E. At December 31, 2021, the accounting staff of Tender Company submitted an inventory list
that showed a total of P2,350,000. The following information needs additional analysis to
determine whether the items should be included or excluded in inventory:
● Merchandise costing P40,000 were transferred to the delivery department on December
28 for shipment on January 3, 2022. This inventory was excluded from the inventory
total.
● Supplier's invoice for P18,000 worth of merchandise dated December 27, 2021 was
received through the mails on December 30, 2021. Shipment term is FOB destination.
Since the goods arrived only on January 4, 2022, the goods were not included in the
year-end inventory.
● Goods valued at P200,000 were received from a supplier for approval and were included
in the ending inventory. The company informed their
supplier by facsimile message of the acceptance of goods on January 4,
2022.
● On December 27, 2021, an order for P25,000 worth of merchandise was placed. This was
included in the year-end inventory although the goods were received only on January 5,
2022. Seller shipped the goods FOB destination.
(5) What is the correct merchandise inventory of Tender Company at December 31, 2021?
a. P2,165,000
b. P2,183,000
c. P2,190,000
d. P2,350,000

F. The following purchases were made by Bay Leaf Trading:

Purchase Date Item Amount Date Paid Term
April 1 Alcohol 500.000 April 10 2/15, n30
April 5 Face Mask 350,000 April 30 1/10, n30
April 8 Face Shield 400,000 April 23 3/15, n30
(6) How much is the total net purchases to be recorded by Bay Leaf using the
gross method of accounting for discounts?
a. P1,224,500
b. P1,228,000
c. P1,240,000
d. P1,250,000

(7) How much is the total net purchases to be recorded by Bay Leaf using the net method of
accounting for discounts?
a. P1,224,500
b. P1,228,000
c. P1,240,000
d. P1,250,000

G. Hepson Company is specializing on sale of printers and related gadgets,

including ink cartridges. Their lines of merchandise include all brands, whether high end or low
end products, catering to both individual and institutional users of the products. During the year,
selected transactions relating to its purchases follow:

Purchases of Bro printers from Metro Pacific Company P836,000

Purchases of Howlet printers from Ayaling Corporation 524,500
Purchases of ink cartridges from Metro Pacific Company 180,000

Terms of Metro Pacific Company and Ayaling Corporation are as follows:

Metro Pacific Company 3/10, n/30

Ayaling Corporation n/10, n/30

During the year, the company received credit memoranda for defective merchandise returned as
follows: (All returns and allowances took place within five days of purchases and prior to any
payment of account)

Metro Pacific Company P52.000

Ayaling Corporation 28.500

Total cash discounts taken during the year amounted to P22,180.

(8) How much were the discounts lost?

a. P38,840
b. P16,660
 c. P40.970
d. P18,790

H. Crimson reported inventory amounting to P1,727,500 in its December 31, 2021 statement of
financial position. Upon verification of the inventory ledger, the following compositions were
found:
Raw materials inventory in the warehouse P350,000
Office supplies 10,000
Work in process inventory 162,500
Shipping cartons 37,500
Newly finished goods inventories in the factory, including
goods specifically segregated per sale contract, P50,000. 550,000
Finished goods out on approval, at cost 25,000
Advances to supplier for materials ordered 50,000
Damaged and unsalable finished goods, at cost 12,500
Merchandise items in the showroom at 50% profit on cost 187,500
Prepaid insurance on inventories 15,000
Goods held, on consignment, at sales price (cost P37,500) 50,000
Merchandise items on hand of agents including 40% profit on 100,000
sales
Merchandise inventories in transit to customers, FOB
destination at cost 62,500
Raw materials in transit, FOB shipping point 40,000
Goods returned by customer in good condition 15,000
Items in receiving department, personnel refused to receive 25,000
due to damage
Goods in the shipping department 35,000

(9) What is the correct amount of inventory as of December 31, 2021?

a. P1,312,500
b. P1,343,750
c. P1,375,000
d. P1,385,000

I. The following costs were incurred by I Square Company related to inventory:

After sales warranty costs 750,000
Brokerage commission to agents 600,000
Delivery costs to customers 120,000
Freight 2,000,000
Handling costs relating to imports 300,000
Import duties 1,200,000
Insurance on inventories in transit 1,000,000
Invoice cost of merchandise inventory purchased 15,000,000
Salary of accountants 1,800,000
Sales commission of sales agents 900,000
Storage costs of finished goods 540,000
VAT on importation 500,000

(10) How much is the correct amount of inventory?

a. P17.100,000
b. P18.300,000
c. P19,500,000
d. P20,100,000

J. Victoria Corporation uses the perpetual inventory method. On August 1, it purchased P20,000
of inventory, terms 2/10, m/30. On August 3, Victoria returned goods that cost P2,000. On
August 9, Victoria paid the supplier.

(11) On August 9, Victoria should credit

a. purchase discounts for P400.
b. inventory for P400.
c. purchase discounts for P360.
d. inventory for P360.

K. Green Company recorded the following data pertaining to one of its inventory items during
January 2021.
January 1 Inventory, 80 units @ P2,000
January 8 Sold 40 units
January 30 Purchased 120 units @ P2,400
(12) What is the moving average unit cost of this item at January 31, 2021?
a. P2,200
b. P2,240
c. P2.300
d. P2,400

L. The following data were taken from the inventory records of Jazz Company for January
relating to one of its inkjet printers:
January 1, balance 24 units @ P1.075 P25,800
Purchase, January 5 '19 units @ P1,135 21,565
Purchase, January 24 38 units @ P1,180 44,840
Sales: 22 units on January 8 and 36 units on January 30
January 31, balance 23 units

(13) What is the inventory value at January 31 under the average method, assuming that the
company maintains perpetual inventory records? (Round off unit cost to nearest peso)
a. P27,140
b. P26 489
c. P26,174
d. P24,725

(14) What is the inventory and does nor maintain under the average method, assuming that the
company does not maintain perpetual inventory records?
a. P27,140
b. P26,489
c. P26,174
d. P24,725

M. The following data pertain to a particular item sold by Gemini Company.,

August 1 - Beginning inventory 2.000 units at P50
August 8 - Purchases 9.000 units at P52
August 10 - Sales 1,500 units at P130
August 14 - Purchase 3.000 units at P55
August 20 - Sales 8,000 units at P135
August 29 - Purchases 1,500 units at P59

(15) Using the FIFO cost flow, how much is the cost of inventory at August 31?
a. P354,000
b. P312,000
c. P331,500
d. P330,000

(16) Using the weighted average method, how much is the gross profit during the month of
August?
a. P503.500
b. P771,500
c. P714,500
d. P785,000
(17) If the units sold on August 10 are specifically identified as originating from the beginning
balance on August 1 and the August 20 sales are specifically identified as originating from
August 8 purchase, how much is the cost of the goods sold during August?
a. P491,000
b. P419,000
c. P490,000
d. P568,000

N. The following data are extracted from the records of an entity relating to an inventory item.
Quantity Unit Cost TC
Jan. 1 Beginning balance 5,000 P200 P1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sales returns 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase returns 2,000 150 300,000

(18) Under the perpetual inventory system, what is the moving average unit cost at January 31?
a. P165
b. P167
c. P181
d. P225

O. The inventory records of Field Company show the following purchases during the first
quarter operations:
January 15,000 units P187,500
February 20,000 units 240,000
March 13,000 units 167,700

The March 31 inventory using the weighted average method is P279,000.

(19) How much is the March 31 inventory using the periodic first-in, first-out
method?
a. P281,700
b. P279,000
c. P277,500
d. P275,500
P. Mahogany Company was organized at the beginning of 2019 and used the FIFO method of
inventory cost allocation. Profit reported under this method and inventories under both FIFO and
weighted average methods are shown below:
2019 2020 2021
Profit under FIFO P 720,000 P1,000,000 P1,400,000
Inventory, end:
Weighted average 2,400,000 3,000,000 4,000.000
FIFO 2,680,000 3,200,000 4,500,000

(20) How much is the profit for the years 2019, 2020 and 2021, respectively, had the weighted
average method been used?
a. P720,000; P1,000,000; P1,400,000
b. P440,000; P1,080,000; P1,100,000
c. P1,000,000; P920,000; P1,700,000
d. cannot be determined

Q. The following data relate to the first three years of operations for Wind
Company:
2019 2020 2021
Profit under FIFO P300.000 P450,000 P160,000
Profit under weighted average 120,000 320,000 120,000
Ending inventory under FIFO 550,000 670,000 710,000

(21) How much is the ending inventory in 2021 using the weighted average
method?
a. P1,060,000
b. P710.000
c. P360,000
d. P350.000

R. Sea Company provided the following net income and inventories for years 2019
through 2021.
Profit Year-end Year-end
using weighted inventory inventory
average method under FIFO under weighted average
2019 P 750,000 P 1,400,000 P 900,000
2020 1.000.000 2.000.000 1.600.000
2021 1,200,000 2,150,000 1,720,000

(22) How much is the total profit for years 2019 - 2021 under the FIFO basis?
 a. P3,380,000
b. P2,950,000
c. P2,520,000
d. P2,250,000

S. A company produces and sells the following quantities of a product:

Date Number of tons Total Cost
July 1 Opening inventory 10 P200
4 Production 8 176
6 Sale 9
15 Production 6 144
18 Sale 11
23 Production 4 104

(23) Which statement is true?

a. Cost of goods sold using FIFO is higher than cost of goods sold using weighted average.
b. Profit using FIFO is higher than profit using weighted average.
c. Total assets at July 31 is higher using weighted average than total assets using FIFO.
d. Profit is not affected by the costing method used to measure inventory.

T. Oasis, Inc. uses the lower of cost and net realizable value for its products in its ending
inventory. Data pertaining to one of its products follow:
Historical cost - P680 Estimated selling price - P1,200
Normal profit - P240 Estimated cost of completion and disposal - P420

(24) What is the inventory unit value for this product?

a. P 540
b. P680
c. P780
d. P1,200

U. The Royal Palm Company has partially completed inventory located in its
factory to which the following information relates:
Production cost to date P29,000
Additional expected selling costs 4,000
Production costs to complete 20,000
Estimated sales price 54,000
Transport costs to customer 3,000

(25) Following PAS 2 Inventories, at what amount should this inventory be

presented in the statement of financial position?
a. P54,000
b. P47,000
c. P29,000
d. P27,000

V. Sugary Company has the policy of valuing inventory at the lower of cost and net realizable
value. Data pertaining to its three classes of sugar products follow:
Splendid Regular White Muscovado
Estimated selling price/unit P3,000 2,000 2,500
Estimated cost to sell/unit 600 400 500
Cost per unit 2,500 1,500 1,300
Number of units (50 kilo bags) 200 500 250

(26) How much inventory should be shown in Sugary Company's December 31 statement of
financial position?
a. P1,555,000
b. P2,225,000
c. P3,850,000
d. Not given

W. Flair Company sells a variety of items to its customers. At December 31, the balance of
Flair's ending inventory account was P5,000,000 and the allowance for inventory write down
account before any adjustment was P200,000. Relevant information about the inventories and the
breakdown of inventory cost and market data at December 31 follows:

Item Cost Replacement Cost Sales Price NRV Normal

Profit
A P1,000,000 P1,100,000 P1,450,000 700,000 100k
R 1,500,000 1,200,000 1,750,000 1,600,000 200k
C 1,700,000 1,300,000 2,000,000 1,450,000 50k
D 800,000 1,000.000 1,300,000 950,000 50k
Total P5,000,000 P4,600,000 6,500,000 4,700,000 400k

(27) How much is the loss on inventory write down to be included in Flair's cost of sales?
a. P550.000
b. P350,000
c. P200.000
d. P100.000
X. Krispy Kreme Company uses the first-in, first-out method in calculating cost of goods sold of
their three products. On January 1, 2021, the inventory account balance was P658,500 and the
allowance for inventory write down account balance was P3,000. Information on the balances
and purchases of the three products are given below for the month of December.
Product A Product B Product C
Units Cost Units Cost Units Cost
12/1 Inventory 50,000 P6.00 30,000 P10.00 65,000 P0.90
12/1-15 Purchases 70,000 P6.50 45,000 P10.50 30,000 P1.25
12/16-31 Purchases 30,000 P8.00
12/1-31 Sales 105,000 50,000 45,000
12/31 Inventory 45,000 25,000 50,000
Sales price per unit P8.00 P.11.00 P2.00

On December 31, 2021, the company's suppliers reduced their prices from the
most recent purchase prices by the following percentages: Product A, 20%; Product B, 10%;
Product C, 8%. Accordingly, Krispy Kreme decided to reduce its sales prices on all items by
10%, effective January 1, 2022. The entity's selling cost is 10% of sales price for all products.

(28) How much is the inventory reported at December 31, 2021 statement of
financial position under the lower of cost and net realizable value?
a. P595,350
b. P569,850
c. P559,350
d. P543,810

Y. On October 31, 2021, a flash flood caused severe damage to the warehouse of Tuscany
Company. The company's merchandise inventory was not covered by any insurance, and thus, it
suffered a significant loss on its merchandise inventory from this flood. The following
information was available from the accounting records of Tuscany.
1/1 to 10/31/21 2020
Merchandise inventory, beginning P400.000 -
Purchases (net of returns) 2,320,000 2,200,000
Sales 3,120,000 2,400,000
Selling expenses 420,000 390,000
General and administrative expenses 510,000 425,000
Other income 50,000 20,000
Interest Expense 28,000 32,000

At the beginning of 2021, the company changed its policy on the selling prices of the
merchandise in order to produce a gross profit rate of 5% greater than the gross profit rate in
2020. Undamaged merchandise marked to sell at P100,000 were salvaged. Damaged
merchandise originally marked to sell at P30,000 had an estimated realizable value of P8,000.

(29) What are the gross profit rates in 2020 and 2021?
a. 25% and 30%
b. 30% and 25%
c. 25% and 26.25%
d. 26.25% and 25%

(30) How much is the estimated inventory loss from the flood?
a. P536,000
b. P458,000
c. P428.000
d. P242,000

(31) Assuming that the damaged merchandise originally marked to sell at P30,000were only
slightly damaged and had an estimated realizable value of
P25,000. What is the estimated inventory loss from the flood on October 31?
a. P406.000
b. P445,000
c. P458,000
d. P536,000

Z. On September 30, 2021, a fire at Chateau Company's only warehouse caused severe damage
to its entire inventory. Based on recent history, Chateau has a gross profit of 30% on cost.The
following information is available from Chateau's records for the nine months ended September
30, 2021.

Inventory, January 1 - P550,000; Purchases - P3,000,000; Net sales P3,640,000. A physical

inventory disclosed usable damaged goods which Chateau estimates can be sold to a jobber for
P50,000.

(32) Using the gross profit method, what is the estimated cost of goods sold for the nine months
ended September 30, 2021?
a. P2,800,000
b. P2,750,000
c. P2,548,000
d. P2,485,000
(33) Assuming that the company's gross profit rate is 30% based on sales, what is the estimated
cost of merchandise lost by the fire?
a. P1,102,000
b. P952.000
c. P750.000
d. P700.000

AA. Light Trading lost most of its inventory in a fire in December, 2021, just before the year-end
physical inventory was taken. The company's books disclosed the following:

Purchases P3,900,000 Purchase Return P300,000

Sales 6,500,000 Sales Return 240,000

Merchandise with a selling price of P210,000 remain undamaged after the fire. Damaged
merchandise with an original selling price of P150,000 had a net realizable value of P53,000. A
partial comparative profit and loss for 2020 and 2019 also disclosed the following:
2020 2019
Sales P5,000,000 P5,600,000
Cost of goods sold
Inventory, January 1 P945,000 P1,100,000
Purchases (net) 3,780,000 3,177,000
Inventory, December 31 (1,700,000) (945,000)
Cost of goods sold P3,025,000 P3,332,000
Gross profit P1,975,000 P2,268,000

(34) Assuming that Light Trading had no insurance coverage, what is the amount of loss as a
result of the fire?
a. P1,544,000
b. P1,365,000
c. P1,328,000
d. P1,281,000

BB. Lindenwood Company reported inventory of P360,000 at December 31, 2021. The
following data were gathered to confirm the reported inventory.
Inventory, December 31, 2020 - P320,000
Purchases during 2021 - P1,410,000
Cash sales during 2021 - P350,000
Shipment received on December 26, 2021 included in physical inventory,
but not recorded as purchases - P10,000
Deposit made with suppliers, P20,000 entered as purchases. Goods were
 not received during 2021.
Collections on accounts receivable during 2021 - P1,800,000
Accounts receivable, December 31, 2020 - P250,000
Accounts receivable, December 31, 2021 - P300,000
Gross profit percentage on sales - 40%

(35) What is the estimated inventory shortage at December 31, 2021?

a. P60,000
b. P50,000
c. P40.000
d. P5,000

CC. On September 30, 2021, a fire at Avida Company's warehouse caused severe damage to its
entire inventory. Based on recent history, Avida has a gross profite of 30% of net sales. A
physical inventory disclosed usable damaged goods which Avida estimates can be sold to a
jobber for P50,000.
The following information is available from Avida's records for the nine months ender
September 30, 2021.

Inventory, January 1 550,000

Total purchases received and recorded, Jan. 1 - Sept. 30 3,000,000
Total freight cost of goods purchased and received 60,000
Total credit memo received on goods purchased and received 200,000
Total discounts taken on purchases 80,000
Invoice received for goods purchased but still in transit 120,000
shipped September 30, 2021, FOB shipping point
Total sales delivered and recorded, Jan. 1 - Sept. 30 3,600,000
Unrecorded sales invoice for goods delivered 300,000
Total sales returns accounted and recorded, Jan. 1 - Sept. 30 160,000
Total sales discounts taken by customers on recorded sales 40,000

(36) Using the gross profit method, how much is the inventory loss?
a. P602,000
b. P662,000
c. P782, 000
d. P832,000

DD. Lafayette Company uses the first-in, first-out retail method of inventory
valuation. The following information is available:
 Beginning inventory: P115,000 at cost; P300,000 at retail
Purchases: P600,000 at cost; P1,100,000 at retail
Net additional markups - P100,000; net markdowns - P200,000
Sales revenue - P900,000

(37) What is the estimated cost of the ending inventory using the FIFO retail
method?
a. P400,000
b. P240,000
c. P220.000
d. P200,000

(38) What is the estimated cost of the ending inventory using the average retail method?
a. P400.000
b. P240.000
c. P220,000
d. P200,000

(39) Applying the lower of cost or net realizable value, what is the estimated cost of the ending
inventory using the FIFO basis?
a. P400,000
b. P240,000
c. P220,000
d. P200,000

EE. The inventory and purchases data of Illumina Company for the last quarter of 2021 are as
follows:
Beginning inventory: At cost - P650,000; At retail - P1,075,000
Purchases: At cost - P2,450,000; At retail - P3,025,000
Freight-in-P50,000
Net markup - P400,000; Net markdown - P300,000
Net sales during the period - P3,880,000

(40) What is the ending inventory at estimated cost using the retail inventory method?
a. P320,000
b. P256,000
c. P240,000
d. P224,000
(41) If Illumina uses the first-in, first-out basis and ignores the lower of cost and 'net realizable
value rule, what is the ending inventory àt estimated cost?
a. P320,000
b. P256,000
c. P240,000
d. P224,000

FF. Grove Company uses the retail inventory method to estimate its inventory for interim
statement purposes. Data pertaining to the computation of inventory at June 30, 2021 follows:
Inventory, January 1; At cost - P180,000; At retail - P250,000
Purchases: At cost - P1,020,000; At retail - P1,575,000
Net markups - P175,000; Sales -P1,705,000
Estimated normal shoplifting losses - P20,000
Net markdowns - P125,000

(42) What is Grove Company's estimated inventory at June 30, 2021 using the retail inventory
method?
a. P150,000
b. P100.000
c. P96,000
d. P90,000

GG. The Burgandy Company values its inventory by using the retail method (FIFO basis, lower
of cost or net realizable value). The following information is available for the year 2021:
Cost Retail
Beginning inventory P 800,000 P1,400,000
Purchases 2,970,000 4,200,000
Freight-in 40,000
Shortages 80,000
Net markups 100,000
Net markdowns 20,000
Sales 4,000,000
Sales allowance 75,000

(43) At what amount would the Burgandy Company report its ending inventory?
a. P1,120,000
b. P1,134,000
c. P1,172,500
d. P1,600,000
HH. During 2021, Palazzo Company signed a non-cancelable contract with Crown Milling
Company to purchase 1,000, 50-kilos sacks of rice at P2,700 per sack with delivery to be made
on April 1, 2022. On December 31, 2021, the price of rice had fallen to P2,680 per sack. On
April 1, 2022, the price per sack of rice further decreased to P2,670.

(44) In Palazzo's December 31, 2021 profit and loss, how much is reported as loss on purchase
commitments?
a. P50.000
b. P30,000
c. P20,000
d. PO

(45) What is the amount of loss on purchase commitments recognized upon

delivery of the 1,000 sacks on April 1, 2022?
a. P30,000
b. P20,000
c. P10,000
d. P. 0

(46) What is the amount of gain on purchase commitments recognized upon increased to P2,750
per sack? delivery of the 1,000 sacks on April 1, 2022 assuming the price per sack has
a. P30,000
b. P20,000
c. P10,000
d. PO

Il. Examination of the records of Tivoli Company for the year ended December 31, 2021
revealed the following:
● During 2021, Tivoli received P40,000 as cash advance from a customer for merchandise
to be manufactured and shipped during 2022. The P40,000 was credited to sales revenue.
● Inventory at January 1, 2021 was overstated by P71,000.
● Inventory at December 31, 2021 was understated by P96,000.
● Profit (before adjustments) reported on the 2021 profit or loss was P658,000.

(47) What is the correct profit for the year ended December 31, 2021?
a. P875,000
b. P865.000
c. P785,000
d. P531,000
JJ. Stellar Company computed its profit for the year 2021 at P320,000 before the discovery of
the following errors.
● Its January 1, 2021 inventory did not include goods costing P20,000 received on January
3, 2021 and were shipped by the supplier in December 2020 FOB shipping point. The
goods were correctly recorded as purchases in December 2020.
● Goods costing P12,000 were counted twice in the December 31, 2021
Count.
● Goods costing P23,000, shipped to customers FOB shipping point on December 29, 2021
were billed on January 2, 2022 at P33,000. The customers received the goods on January
2, 2022. The goods were not included in the December 31, 2021 physical count.

(48) What is the correct profit of Stellar Company for the year 2021?
a. P385,000
b. P361,000
c. P321,000
d. P298,000

KK.
The following information pertain to the only sale of inventory transaction of Orion Company in
2021:

Date of sale - December 23, 2021; No. of units sold - 10,000; Selling price - P150 per unit; Right
to return period - within 15 days; Estimated return for cash refund within 15 days - 5% of units
sold; Estimated return for exchange of equal or greater value of merchandise - 10%; Cost per
unit - P100

(49) Compute the amount of sales to be recognized in 2021.

a. P1,500,000
b. P1,475,000
c. P1,425,000
d. P1,000,000

(50) What amount of cost goods sold will appear in the 2021 statement of income?
a. P925,000
b. P950,000
c. P975,000
d. P1,000,000