FAR EASTERN UNIVERSITY

Institute of Accounts, Business and Finance

Accountancy and Internal Auditing Department
Financial Accounting P-1 Free Section – Quiz #3
PROBLEMS (x1.30)
Jeselle Company reported inventory on December 31, 2016 at P6,000,000 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 30, 2016.
These goods had a cost of P125,000 and were picked up by the carrier on January 15, 2017.
- Goods shipped FOB shipping point on December 31, 2016 from a vendor were received on January 15,
2017. The invoice cost was P300,000.
- Goods sold to a customer on December 31, 2016 which are being held for the customer to call at the
customer’s convenience with a cost of P200,000 were included in the count

1. What amount should be reported as inventory on December 31, 2016?

a. 5,875,000
b. 6,100,000
c. 6,175,000
d. 6,300,000

Christine Company incurred the following costs during the current year:
Cost of purchases based on invoices 5,000,000
Trade discounts already deducted from invoices 500,000
Import duties 400,000
Freight and Insurance on Purchases 600,000
Other handling costs on imports 100,000
Commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
Salaries of accounting department 1,000,000
After sales warranty costs 250,000

2. What is the total cost of purchases?

a. 6,300,000
b. 5,800,000
c. 6,100,000
d. 6,600,000

Wilfredo Company included the following items in inventory at year-end:

Goods out on consignment at sale price, including 40% markup on sales 1,400,000
Goods purchased in transit, shipped FOB destination 1,200,000
Goods held on consignment by Wilfredo 900,000
3. At what amount should the inventory at year-end be reduced?
a. 1,460,000
b. 2,660,000
c. 2,940,000
d. 1,740,000

On june 1, 2016, Ace Company sold merchandise with a list price of P5,000,000 to a customer. The entity allowed
trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the sale was made FOB shipping point. The
entity prepaid P100,000 of delivery cost for the customer as an accommodation.
4. On June 11, 2016, what is the full remittance from the customer?
a. 3,600,000
b. 3,420,000
c. 3,700,000
d. 3,520,000

On July 1, 2016, Krizzel Company recorded purchases of P3,000,000 and P2,000,000 under credit terms of 2/15,
net 30. The payment on the P3,000,000 purchase was remitted on July 16. The payment on the P2,000,000
purchase was remitted on July 31.
 5. What amount of purchases should be included in the determination of cost of goods available for sale,
under gross method?
a. 5,000,000
b. 4,900,000
c. 4,940,000
d. 4,960,000
6. What amount of purchases should be included in the determination of cost of goods available for sale,
under net method?
a. 5,000,000
b. 4,900,000
c. 4,940,000
d. 4,960,000

Carl Company reported accounts payable of P2,200,000 on December 31, 2016 before considering the following
data:
- Goods shipped to the entity on December 31, 2016 FOB Shipping Point were lost in transit. The invoice
cost of P40,000 was not recorded. January 15, 2017, the entity filed a P40,000 claim against the common
carrier
- On December 31, 2016, a vendor authorized the entity to return for full credit goods shipped and billed at
P70,000 on December 15, 2016. The returned goods were shipped by the entity on December 31, 2016. A
P70,000 credit memo was received and recorded by the entity on January 15, 2017.
- On December 31, 2016, the entity has a P500,000 debit balance in accounts payable to a supplier resulting
from an advance payment for goods to be manufactured to the entity’s specifications.

7. What amount should be reported as accounts payable on December 31, 2016?

a. 2,170,000
b. 2,680,000
c. 2,730,000
d. 2,670,000

Vladimir Company provided the following information:

Units Unit Cost Total Cost
Jan. 1 Beginning Balance 10,000 150 1,500,000
5 Purchase 10,000 180 1,800,000
15 Sale 15,000
16 Sale Return 1,000
25 Purchase 4,000 200 800,000
26 Purchase Return 2,000 200 400,000

8. Under FIFO, what amount should be reported as cost of goods sold?

a. 2,220,000
b. 2,620,000
c. 2,500,000
d. 2,900,000
9. Under weighted average, what amount should be reported as ending inventory?
a. 1,345,440
b. 1,366,640
c. 1,413,360
d. 1,432,000
10. Under moving average, what amount should be reported as ending inventory?
a. 1,690,000
b. 1,390,000
c. 1,790,000
d. 1,600,000
11. Under moving average, the next sale of inventory would be priced at what cost?
a. 173.75
b. 179.00
c. 200.00
d. 190.00
Patrick Company used the retail inventory method to approximate the ending inventory. The following
information is available for the current year:
COST RETAIL
Beginning Inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight In 200,000
Purchase Returns 300,000 500,000
Purchase Allowances 150,000
Departmental Transfer In 200,000 300,000
Net Markups 300,000
Net Markdowns 1,000,000
Sales 9,500,000
Sales Discount 100,000
Employee Discounts 500,000
Estimated Normal Shoplifting Losses 600,000
Estimated normal shrinkage 400,000
12. What is the estimated cost of ending inventory using the conservative approach?
a. 2,400,000
b. 2,460,000
c. 3,060,000
d. 2,700,000
13. What is the estimated cost of ending inventory using the average cost approach?
a. 2,560,000
b. 2,624,000
c. 3,264,000
d. 2,880,000

On December 31, 2016, a fire destroyed most of the merchandise inventory of Vialyne Company. All goods were
completely destroyed except for partially damaged goods that normally sell for P100,000 and that had an
estimated net realizable value of P25,000 undamaged goods that normally sell for P60,000
Inventory, January 1, 2016 600,000
Net Purchases for 2016 4,300,000
Net Sales for 2016 5,600,000
Total 2015 2014 2013
Net Sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of Sales 6,750,000 3,840,000 2,200,000 710,000
Gross Income 2,250,000 1,160,000 800,000 290,000

14. What is the estimated amount of fire loss on December 31, 2016?
a. 700,000
b. 615,000
c. 630,000
d. 580,000

During the current year, Kaela 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. Of the tract of land, 70% was subdivided into residential lots
and 30% was for road and park. 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.
15. What amount of the costs should be allocated t0 Class A lots?
a. 3,000,000
b. 3,750,000
c. 6,000,000
d. 4,200,000

On December 31, 2016, Mia Company reported inventory at P3,000,000 cost and P2,900,000 net realizable value.
On December 31, 2017, the inventory was P4,000,000at cost and P3,700,000 at net realizable value. The entity
made net purchases of P9,000,000 during 2017.
16. What amount should be reported as cost of goods sold for 2017?
a. 8,000,000
b. 8,200,000
c. 8,450,000
 d. 8,300,000

On December 31, 2016, Eloisa Company experienced a decline in the value of inventory resulting in a writedown
from P4,000,000 cost to P3,500,000 net realizable value. The entity used the allowance method to record the
necessary adjustment. In 2016, market conditions have improved dramatically. On December 31, 2017, the
inventory had a cost of p5,000,000 and net realizable value of P4,800,000. The entity made purchases of
P20,000,000 in 2017.
17. What amount should be recognized as gain reversal of inventory writedown in 2017?
a. 200,000
b. 300,000
c. 500,000
d. 0
18. What amount should be reported as cost of goods sold in 2017?
a. 19,000,000
b. 19,300,000
c. 18,700,000
d. 24,000,000

Felicidad provided the following information during the current year:

Product 1 Product 2
Materials and conversion cost 3,000,000 3,600,000
Estimated selling price 4,000,000 6,000,000
Estimated selling cost 1,200,000 1,400,000
General administration cost 600,000 1,600,000
Normal profit margin on sales 1,000,000 1,500,000
At year-end, the manufacture of the products has been completed but no selling cost has yet been incurred
19. What amount should be reported as ending inventory using the LCNRV individual approach
a. 6,400,000
b. 6,600,000
c. 4,900,000
d. 5,800,000
20. What amount should be reported as ending inventory using LCNRV total approach?
a. 6,600,000
b. 6,400,000
c. 7,400,000
d. 4,900,000
THEORIES
1. Inventories are assets defined by all of the following, except
a. Held for sale in the ordinary course of business
b. In the process of production for such sale
c. In the form of materials or supplies to be consumed in the production process or the rendering or
services
d. Used in the production or supply of goods and services for administrative purposes
2. What is consigned inventory?
a. Goods that are shipped but title transfers to the receiver
b. Goods that are sold but payment is not required until the goods are sold
c. Goods that are shipped but title remains with the shipper
d. Goods that have been segregated for shipment to a customer
3. How is a significant amount of consignment inventory reported?
a. The inventory is reported separately on the consignor’s statement of financial position
b. The inventory is combined with other inventory of the consignor
c. The inventory is reported separately on the consignees’ statement of financial position
d. The inventory is combined with other inventory of the consignee
4. How should unallocated fixed overhead costs be treated?
a. Allocated to finished goods and cost of goods sold
b. Allocated to raw materials, work in process and finished goods
c. Recognized as an expense in the period when incurred
d. Allocated to work in process, finished goods and cost of goods sold
5. The inventory of a service of a service provider is described as work in progress and include
a. Labor cost of personnel directly engaged in providing the service
 b. Compensation of supervisors directly engaged in providing the service
c. Attributable overhead incurred in providing the service
d. All of these are included in the inventory of a service provider
6. The use of purchase discount account implies that the recorded cost of a purchased inventory is
a. Invoice price
b. Invoice price plus purchase discount lost
c. Invoice price less purchase discount taken
d. Invoice price less purchase discount allowable whether taken or not
7. When a portion of inventory 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 fact should be disclosed but the amount of current assets should not be affected
d. The cost of the pledged inventory should be transferred from current to noncurrent asset
8. If a material amount of inventory has been ordered through a formal purchase contract at the statement of
financial position date for future delivery at firm prices
a. This fact must be disclosed
b. Disclosure is required only if prices have declined since the date of the order
c. Disclosure is required only if prices have since risen substantially
d. An appropriation of retained earnings is necessary
9. 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. Average Method
c. LIFO
d. Specific Identification
10. Which of the following is likely to be a circumstance where the specific identification criteria can be met?
a. Unit price is low
b. Inventory turnover is low
c. Inventory quantities are large
d. All of the choices are circumstances where the criteria for specific identification are likely to be
met
11. Which method of inventory pricing best approximates specific identification of the actual flow of costs
and units in most manufacturing situations?
a. Average cost
b. First-in, first-out
c. Moving average
d. Weighted average

12. LCNRV of inventory

a. Is always either the net realizable value or cost
b. Should always be equal to net realizable value
c. May sometimes be less than net realizable value
d. Should always be equal to estimated selling price less cost to complete
13. When the cost of goods sold method is used to record inventory at net realizable value
a. There is a direct reduction in the selling price of the product that results in a loss
b. A loss is recorded by debiting loss on inventory and crediting inventory
c. Only the portion of the loss attributable to inventory sold during the period is recorded
d. The NRV is substituted for cost and the loss is buried in cost of goods sold
14. Which of the following is not an acceptable method of applying the lower of cost or net realizable value
method to inventory?
a. Inventory location
b. Groups of inventory items
c. Individual item
d. Total of the inventory
15. Which of the following statements is true regarding inventory writedowns and recovery of writedown?
a. Recovery of inventory writedown is prohibited under IFRS
b. IFRS requires separate reporting of reversal of inventory writedown
c. IFRS requires entities to record writedown in a separate loss account
d. All of the choice are true
16. Situation in which net realizable value is used to value inventory include
a. Agricultural produce
b. Minerals and mineral products
 c. Commodities held by broker-traders
d. All of these are measured at net realizable value
17. 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 each time a sale is made
d. Cost of goods sold is determined as the amount of purchases less the change in inventory
18. When the conventional retail inventory method is used, markdowns are commonly ignored in the
computation of the cost to retails ratio because
a. There may be no markdowns in a given year
b. This tends to give a better approximation of the lower of cost or net realizable value
c. Markups are also ignored
d. This tends to result in the showing of a normal profit margin in a period when no markdown goods
have been sold
19. Which is not a reason the retail inventory method is used widely?
a. As control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count of inventory
d. Defer income tax liability
20. The use of the gross profit method assumes
a. The amount of gross profit is the same as in prior years
b. Sales and cost of goods sold have not changed from previous years
c. Inventory value has not increased from previous years
d. ‘The relationship between selling price and cost of goods sold is similar to prior years