Coffee

ntermediate Accounting 1 | BSA-2201 CHAPTER 10 INVENTORIES
INVENTORIES 
assets held for sale in the extraordinary course of business, in the process of production
for such sale or in the form of materials or supplies to be consumed in the production
process or in the rendering of services.
encompass goods purchased and held for resale, for example: a. Merchandise
purchased by a retailer and held for resale. b. Land and other property held for resale
by a subdivision entity and real estate developer.
also encompass finished goods produced, goods in process and materials and supplies
awaiting use in the production process.
CLASSES OF INVENTORIES 1. Inventories of a trading concern 
one that buys and sells goods in the same form purchased
“Merchandise Inventory” is the term generally applied to goods held by a trading

concern.
2. Inventories of manufacturing concern 
one that buys goods which are altered or converted into another form before they are
made available for sale
INVENTORIES OF A MANUFACTURING CONCERN 1. Finished Goods 
completed products which are ready for sale
have been assigned their full share of manufacturing costs
2. Goods in Process (Work in Process) 
partially completed products which require further process or work before they can be
sold
3. Raw Materials 1 |Chapter 10 – Inventories
Intermediate Accounting 1 | BSA-2201 
goods that are to be used in the production process
4. Factory or Manufacturing Supplies 
similar to raw materials but their relationship to the end product is indirect
may be referred to as “Indirect Materials” because they are not physically incorporated
in the products being manufactured
these supplies find their way into the product cost as part of the manufacturing
overhead
GOODS INCLUDIBLE IN THE INVENTORY RULE: all goods to which the entity has
title shall be included in the inventory, regardless of the location. ”PASSING OF TITLE”
– a phrase that is a legal language which means “the point of time at which ownership
changes”.
LEGAL TEST Is the entity the owner of the goods to be inventoried? If the answer is: 
affirmative, the goods shall be included in the inventory.
negative, the goods shall be excluded in the inventory.
Applying the legal test, the following items are includible in inventory: a. Goods owned
and on hand b. Goods in transit and sold FOB destination c. Goods in transit and
purchased FOB shipping point d. Goods out on consignment e. Goods in the hands of
salesman or agents f. Goods held by customers on approval or on trial
WHO IS THE OWER OF GOODS IN TRANSIT? FOB – free on board 1. FOB

destination 
ownership of goods purchased is transferred only upon receipt of goods by the buyer at
the point of destination
2 |Chapter 10 – Inventories
thus, the goods in transit are still the property of the seller
accordingly, the seller shall legally be responsible for freight charges and other
expenses up to the point of destination
2. FOB shipping point 
ownership is transferred upon shipment of the goods
therefore, the goods in transit are the property of the buyer
accordingly, the buyer shall legally be responsible for freight charges and other
expenses from the point of shipment to the point of destination
FREIGHT TERMS 1. Freight collect 
freight charge on the goods shipped is not yet paid
common carrier shall collect the same from the buyer
thus, the freight charge is actually paid by the buyer
2. Freight prepaid 
freight charge on the goods shipped is already paid by the seller
FOB destination and FOB shipping point  determine the ownership of the goods in
transit and the party who is supposed to pay the freight charge and other expenses from
the point of shipment to the point of destination
Freight Terms FOB destination, Freight prepaid FOB shipping point, Freight collect FOB
destination, Freight collect FOB shipping point, Freight prepaid MARITIME SHIPPING
TERMS 1. FAS or Free alongside
Freight collect and Freight prepaid  determine the party who actually paid the freight
charge but not the party who is supposed to legally pay the freight charge
Who Shoulders the Transportation Costs? seller buyer seller buyer
Who Pays the Shipper? seller buyer buyer seller
A seller who ships FAS must bear all expenses and risks involved in delivering the
goods to the dock next to or alongside the vessel on which the goods are to be shipped.
The buyer bears the cost of loading and shipment and thus, title passes to the buyer
when the carrier takes possession of the goods.
2. CIF or Cost, insurance and freight 
The buyer agrees to pay in a lump sum the cost of the goods, insurance and freight
charge.
The shipping contract may be modified as CF which means that the buyer agrees to pay
in lump sum the cost of the goods and freight charge only.
The seller must pay for the cost of loading. Thus, title and risk of loss shall pass to the
buyer upon delivery of the goods to the carrier.
3. Ex-ship 
A seller who delivers the goods ex-ship bears all expenses and risk of loss until the
goods are unloaded at which time title and risk of loss shall pass to the buyer,
CONSIGNED GOODS A consignment is a method of marketing goods in which the

owner called the consignor transfers physical possession of certain goods to an agent
called the consignee who sells them on the owner’s behalf. Consigned goods shall be
included in the consignor’s inventory and excluded from the consignee’s inventory.
Freight and other handling charges on goods out of consignment are part of the cost of
goods consigned. When consigned goods are sold by the consignee, a report is made
to the consignor together with a cash remittance for the amount of sales minus
commission and other expenses chargeable to the consignor.
STATEMENT PRESENTATION Inventories are generally classified as current assets.
Intermediate Accounting 1 | BSA-2201 The inventories shall be presented as one line

item in the statement of financial position but the details of the inventories shall be
disclosed in the notes to financial statements.
ACCOUNTING FOR INVENTORIES 1. Periodic System 
calls for the physical counting of goods on hand at the end of the accounting period to
determine quantities
The quantities are then multiplied by the corresponding unit costs to get the inventory
value for balance sheet purposes.
This approach gives actual or physical inventories.
this procedure is generally used when the individual inventory items have small peso
investment
2. Perpetual System 
requires the maintenance of records called stock cards that usually offer a running
summary of the inventory inflow and outflow
Inventory increases and decreases are reflected in the stock cards and the resulting
balance represents the inventory.
This approach gives book or perpetual inventories.
this procedure is commonly used where the inventory items treated individually
represent a relatively large peso investment
when used, a physical count of the units on hand should at least be made once a year
to confirm the balances appearing on the stock cards
ILLUSTRATION Periodic System
Perpetual System
Purchases xxx Accounts payable xxx
Freight in Cash
xxx xxx
Purchase of merchandise on account
Merchandise inventory xxx Accounts payable xxx
Payment of freight Merchandise inventory xxx Cash xxx on the purchase
Intermediate Accounting 1 | BSA-2201
Accounts payable Purchase return
xxx xxx
Return of merchandise purchased to supplier
Accounts receivable xxx Sales xxx
Sale of merchandise on account
Sales return xxx Accounts receivable xxx
Return of merchandise sold from customer
Merchandise inventory-end xxx Income summary xxx
Adjustment of ending inventory
Accounts payable xxx Merchandise inventory xxx

Accounts receivable Sales
xxx xxx
Cost of goods sold xxx Merchandise inventory xxx
Sales return xxx Accounts receivable xxx Merchandise inventory xxx Cost of goods sold
xxx
RULE: the ending balance is not adjusted. The balance of the merchandise inventory
account represents the ending inventory.
INVENTORY SHORTAGE OR OVERAGE If at the end of the accounting period, a

physical count indicates a different amount, an adjustment is necessary to recognize
any inventory shortage of overage. The inventory shortage is usually closed to cost of
goods sold because this is often the result of normal shrinkage and breakage in
inventory. However, abnormal and material shortage shall be separately classified and
presented as other expense.
TRADE DISCOUNTS AND CASH DISCOUNTS 1. Trade discounts 
deductions from the list or catalog price in order to arrive at the invoice price which is
the amount actually charged to the buyer
thus, not recorded
its purpose is to encourage trading or increase sales
also suggest to the buyer the price at which the goods may be resold
2. Cash discounts 
deductions from the invoice price when payment is made within the discount period
its purpose is to encourage prompt payment


recorded as purchase discount by the buyer and sales discount by the seller -
Purchase discount is deducted from the purchases to arrive at net purchases.
Sales discount is deducted from sales to arrive at net sales revenue.
METHODS OF RECORDING PURCHASES 1. Gross method 
purchases and accounts payable are recorded at gross
in practice, most entities record purchases at gross invoice amount
technically, this violates the matching principle because discounts are recorded only
when taken or when cash is paid rather than when purchases that give rise to the
discounts are made
this procedure does not allocate discounts taken between goods sold and goods on
hand
despite theoretical shortcomings, this is supported on practical grounds
more convenient than the net method from a bookkeeping standpoint
if applied consistently over time, it usually produces no material errors in the financial
statements
2. Net method 
purchases and accounts payable are recorded at net


cost measured represents the cash equivalent price on the date of payment and
therefore the theoretically correct historical cost
ILLUSTRATION Purchases
Gross Method 200,000
Purchases
Net Method 196,000
Intermediate Accounting 1 | BSA-2201 Accounts Payable
200,000
Purchase on account, P200,000, 2/10, n/30.
Accounts Payable
196,000
Accounts payable 200,000 Cash 196,000 Purchase discount 4,000
Assume payment is made between within the discount period.
Accounts payable 196,000 Cash 196,000
Accounts payable 200,000 Cash 200,000
Assume payment is made beyond the discount period,
Accounts payable 196,000 Purchase disc. lost 4,000 Cash 200,000
Assume at the end of accounting period, no payment is made and the discount period
has expired.
Purchase disc. lost Cash
4,000 4,000
COST OF INVENTORIES a. Cost of Purchase 
comprises the purchase price, import duties and irrecoverable taxes, freight, handling
and other costs directly attributable to the acquisition of finished goods, materials and
services
trade discounts, rebates and other similar items are deducted
shall not include foreign exchange differences which arise directly from the recent
acquisition of inventories involving a foreign currency
when inventories are purchased with deferred settlement terms, the difference between
the purchase price for normal credit terms and the amount paid is recognized as interest
expense over the period of financing
a. Cost of Conversion 
includes cost directly related to the units of production such as direct labor
also includes a systematic allocation of fixed and variable production overhead that is
incurred in converting materials into finished goods. a. Fixed production overhead – the
indirect cost of production that remains relatively constant regardless of the volume of
production. EXAMPLES: depreciation and maintenance of factory building and
equipment, and administration. b. Variable production overhead – the indirect cost of
production that varies directly with the volume of production. EXAMPLES: indirect labor
and indirect materials.
Allocation of fixed production overhead Allocation of variable production overhead  to

cost of conversion, is based on  allocated to each unit of production normal capacity of
the production on the basis of the actual use of the facilities production facilities Normal
Capacity – is the production expected  A production process may result in to be
achieved on average over a number of more than one product being periods or seasons
under normal circumstances produced simultaneously. taking into account the loss of
capacity EXAMPLE CASE: when joint products are resulting from planned
maintenance. produced or where there is a main product and  the amount to each unit
of a by-product. production is not increased as  When the costs of conversion are
consequence of low production or not separately identifiable, they are idle plant
allocated between the products on a Unallocated fixed overhead – is recognized as
rational and consistent basis. expense in the period in which it is incurred.  Most by-
products by their nature are not material. By-products – are measured at net realizable
value and this value is deducted from the cost of the main product. 3. Other Cost 
included in the cost of inventories only to the extent that it is incurred in bringing the
inventories to their present location and condition
For example, it may be appropriate to include the cost of designing product for specific
customers in the cost of inventories.
However, the following costs are excluded from the cost of inventories and recognized
as expenses in the period when incurred:
Intermediate Accounting 1 | BSA-2201 a. Abnormal amounts of wasted materials, labor

and other production costs. b. Storage costs, unless these costs are necessary in the
production process prior to a further production stage. Thus, storage costs on goods in
process are capitalized but storage costs on finished goods are expensed. c.
Administrative overheads that do not contribute to bringing inventories to their present
location and condition. d. Distribution or selling costs
COST OF INVENTORIES OF A SERVICE PROVIDER 
consists primarily of the labor and other costs of personnel directly engaged in providing
the service, including supervisory personnel and attributable overhead
Labor and other costs relating to sales and general administrative personnel are not
included but are recognized as expenses in the period in which they are incurred.
Intermediate Accounting 1 | BSA-2201 PROBLEMS
Problem 10-9 (AICPA Adapted)
Hero Company reported inventory on December 31, 2020 at P6,000,000 based on a

physical count of goods priced at cost, and before any necessary year-end adjustment
relating to the following: 
Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2020.
These goods had a cost of P125,000 and were picked up by the carrier on January 10,
2021. 
Goods shipped FOB shipping point on December 28, 2020 from a vendor to Hero
Company were received on January 4, 2021. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2020?
a. 5,875,000 b. 6,000,000 c. 6,175,000 d. 6,300,000
Empty Company reported inventory on December 31, 2020 at P2,500,000 based on

physical count priced at cost and before any necessary adjustment for the following;
Merchandise costing P100,000, shipped FOB shipping point from a vendor on

December 30, 2020 was received and recorded on January 5, 2021.
Goods in the shipping area were excluded from inventory although shipment was not
made until January 5, 2021.
The goods billed to the customer FOB shipping point on December 30, 2020 had a cost
of P400,000.
a. 2,500,000 b. 2,600,000 c. 2,900,000 d. 3,000,000
Dignity Company had the following consignment transactions during the current year:
Inventory shipped on consignment to a consignee Freight paid by Dignity Company
Inventory received on consignment from a consignor Freight prepaid by consignor
No sales of consigned goods were made during the current year.
What amount should be reported as consigned inventory at year-end?
a. 700,000 b. 650,000 c. 850,000 12 |Chapter 10 – Inventories
600,000 50,000 800,000 50,000
Intermediate Accounting 1 | BSA-2201 d. 600,000
Kindness Company regularly buys sweaters and is allowed a trade discount of 20% and
10%.
The entity made a purchase on March 20 and received an invoice with a list price of
P900,000, a freight charge of P50,000, and payment terms of net 30 days.
What is the cost of the purchase?
a. 648,000 b. 630,000 c. 698,000 d. 680,000
On June 1, Compassion Company sold merchandise with a list price of P1,000,000 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 P50,000 of delivery cost for the customer as an accommodation. The
customer paid in full on June 11.
What amount is received from the customer as full remittance?
a. 684,000 b. 734,000 13 |Chapter 10 – Inventories
Intermediate Accounting 1 | BSA-2201 c. 720,000 d. 770,000
Kew Company reported accounts payable on December 31, 2020 at P2,200,000 before
considering the following data: 
Goods shipped to Kew FOB shipping point on December 22, 2020 were lost in transit.
The invoice cost of P40,000 was not recorded by Kew.
On January 7, 2021, Kew filed a P40,000 claim against the common carrier. 
On December 27, 2020, a vendor authorized Kew to return for full credit goods shipped
and billed at P70,000 on December 15, 2020.
The returned goods were shipped by Kew on December 28, 2020. A P70,000 credit
memo was received by Kew on January 5, 2021. 
On December 31, 2020, Kew has a P500,000 debit balance in accounts payable to
Ross, a supplier, resulting from a P500,000 advance payment for goods to be
manufactured.
What amount should be reported as accounts payable on December 31, 2020?
a. 2,170,000 b. 2,680,000 c. 2,730,000 d. 2,670,000
Intermediate Accounting 1 | BSA-2201 Black Company reported accounts payable on

December 31, 2020 at P4,500,000 before any necessary year-end adjustments relating
to the following transactions: 
On December 27, 2020, Black Company wrote and recorded checks to creditors totaling
P2,000,000 causing an overdraft of P500,000 in Black Company’s bank account on
December 31, 2020. The checks were mailed out on January 10, 2021.
On December 28, 2020, Black Company purchased and received goods for P750,000
terms 2/10, n/30.
Black Company records purchases and accounts payable at net amount. The invoice
was recorded and paid January 5, 2021. 
Goods shipped FOB destination, 5/10, n/30 on December 20, 2020 from a vendor to
Black Company were received January 15, 2021. The invoice cost was P325,000.
On December 31, 2020, what amount should be reported as accounts payable?
a. 7,575,000 b. 7,250,000 c. 7,235,000 d. 7,553,000
Problem 10-16 (IAA)

A physical count on December 31, 2020 revealed that Joyous Company had inventory
with a cost of P4,410,000.
The following items were excluded from the amount: 
Merchandise of P610,000 is held by Joyous on consignment.
Merchandise costing P380,000 was shipped by Joyous FOB destination to a customer

on December 31, 2020.
The customer was expected to receive the goods on January 5, 2021. 
Merchandise costing P460,000 was shipped by Joyous FOB shipping point to a

customer on December 29, 2020.
The customer was expected to receive the goods on January 10, 2021. 
Merchandise costing P830,000 shipped by vendor FOB destination on December 31,

2020 was received by Joyous on January 15, 2021.
Merchandise costing P510,000 purchased FOB shipping point was shipped by the
supplier on December 31, 2020 and received by Joyous on January 5, 2021.
What amount of inventory should be reported on December 31, 2020?
a. 5,300,000 b. 4,690,000 c. 3,800,000 d. 4,920,000
Problem 10-17 (IAA)
Audacity Company counted the ending inventory on December 31, 2020 and reported
the amount of P2,000,000 before any corrections.
None of the following items were included when the total amount of the ending inventory
was computed: 16 |Chapter 10 – Inventories

Goods located in the entity’s warehouse are on consignment from another entity
Goods sold by the entity is shipped FOB destination were in transit on December 31,
2020 and received by the customer on January 2, 2021
200,000
Goods purchased by the entity and shipped FOB shipping point were in transit on
December 31, 2020 and received by the entity on January 2, 2021
150,000
Goods sold by the entity and shipped FOB shipping point were in transit on December
31, 2020 and received by the customer on January 2, 2021
300,000
400,000
What amount of inventory should be reported on December 31, 2020?
a. 2,500,000 b. 2,350,000 c. 2,900,000 d. 2,750,000
Reverend Company conducted a physical count on December 31, 2020 which revealed
merchandise with a total cost of P5,000,000.
However, further investigation revealed that the following items were excluded from the
count. 
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.
A packing case containing a product costing P500,000 was standing in the shipping
room when the physical inventory was taken.
The product was not included in the inventory because it was marked “hold for shipping
instructions”. The investigation revealed that the customer’s order was dated December
28, 2020, but that the case was shipped and the other customer billed on January 5,
2021. 
A special machine costing P250,000 fabricated to order for a customer was finished and
specifically segregated at the back part of the shipping room on December 31, 2020.
The customer was billed on that date and the machine was excluded from inventory
although it was shipped on January 5, 2021. 
Goods in process costing P300,000 held by an outside processor for further processing.
Goods costing P50,000 shipped by a vendor FOB seller on December 31, 2020 and
received by the entity on January 10, 2021.
What is the correct amount of inventory that should be reported on December 31, 2020?
a. 5,500,000 b. 5,550,000 c. 5,850,000 d. 5,800,000
Problem 10-19 (IAA)
Sundown Company is preparing the 2020 year-end financial statements. Prior to any
adjustments, inventory is valued at P7,600,000.
Goods costing P250,000 were received from a vendor on January 5, 2021. The related
invoice was received and recorded on January 12, 2021.
The goods were shipped December 31, 202 FOB shipping point. 
Goods costing P850,000 were shipped on December 31, 2020 to a customer FOB
shipping point.
The goods were included in ending inventory for 2020 even though the sale was
recorded in 2020. 
A P350,000 shipment of goods to a customer on December 31, 2020 FOB destination
was not included in the year-end inventory.
The goods cost P260,000 and were delivered to the customer on January 15, 2021. The
sale was properly recorded in 2021. 
An invoice for goods costing P350,000 was received and recorded as purchase on
December 31, 2020.
The related goods shipped FAS were in transit on December 31, 2020 and received on
January 5, 2021 and were not included in the physical inventory. 
A P1,050,000 shipment of goods to a customer on December 30, 2020 FOB destination

was recorded as a sale in 2020.
The goods costing P840,000 and delivered to the customer on January 5, 2021 were
not included in 2020 ending inventory.
What is the correct inventory on December 31, 2020?
Intermediate Accounting 1 | BSA-2201 a. 9,300,000 b. 7,610,000 c. 8,100,000 d.

8,450,000
Problem 10-20 (AICPA Adapted) White Company’s usual sales terms are net 60 days,
FOB shipping point. Sales, net of returns and allowances, totaled P5,000,000 for the
year ended December 31, 2020, before year-end adjustment. 
On December 27, 2020, White Company authorized a customer to return, for full credit,
goods shipped and billed at P50,000 on December 15, 2020.
The returned goods were received by White Company on January 5, 2021, and a
P50,000 credit memo was issued on the same date. 
Goods with an invoice amount of P300,000 were billed to a customer on January 10,
2021. The goods were shipped on December 31, 2020.
Goods with an invoice amount of P200,000 were billed and recorded on December 30,
2020. The goods were hipped on January 5, 2021.
On January 5, 2021, a customer notified White Company that goods billed at P500,000
and shipped on December 31, 2020 were lost in transit.
What amount of net sales should be reported for the current year?
a. 5,050,000 b. 5,550,000 c. 4,550,000 d. 4,450,000 20 |Chapter 10 – Inventories
Purple Company had sales of P4,000,000 during December of the current year.
Experience has shown that merchandise equaling 7% of sales will be returned within 30
days and an additional 3% will be returned within 90 days. Returned merchandise is
readily resalable.
In addition, merchandise equaling 15% of sales will be exchanged for merchandise of

equal or greater value.
What amount should be reported for net sales for the month of December?
a. 3,600,000 b. 3,400,000 c. 3,120,000 d. 3,000,000
Yellow Company, a distributor of machinery, bought a machine from the manufacturer in

November 2020 for P500,000.
On December 30, 2020, the entity sold this machine for P750,000 under the following
terms: 2% discount if paid within 30 days, 1% discount if paid after 30 days, or payable
in full within ninety days if not paid within the discount periods.
However, the customer had the right to return this machine to Yellow Company if it was
unable to resell the machine before the expiration of the ninety-day payment period, in
which case the customer’s obligation to Yellow Company would be canceled.
Intermediate Accounting 1 | BSA-2201 In the net sales for the year ended December
31, 2020, what amount should be included for the sale of machine?
a. 750,000 b. 735,000 c. 742,500 d. 0
Problem 10-23 (AICPA Adapted) On October 1, 2020, Indomitable Company sold

100,000 gallons of heating oil at P30 per gallon. Fifty thousand gallons were delivered
on December 15, 2020, and the remaining 50,000 gallons were delivered on January
15, 2021.
Payment terms were: 50% due on October 1, 2020, 25% on the first delivery, and the
remaining 25% due on the second delivery.
What amount of sales revenue should be recognized during 2020?
a. 3,000,000 b. 1,500,000 c. 2,250,000 d. 1,000,000
Fancy Company is a wholesale distributor of automotive replacement parts. The entity

revealed the following initial amounts on December 31, 2020:
Inventory at December 31 based on physical count
1,250,000
Accounts payable
1,000,000
Sales
9,000,000
Additional information
A. Parts held on consignment from another entity to Fancy Company, the consignee,
amounting to P165,000, were included in the physical count on December 31, 2020,
and in accounts payable on December 31, 2020.
B. P20,000 of parts which were purchased and paid for on December 2020, were sold
in the last week of 2020 and appropriately recorded as sales of P28,000.
The parts were included in the physical count on December 31, 2020 because the parts
were on the loading dock waiting to be picked up by the customers.
C. Parts in transit on December 31, 2020 to customers, shipped FOB shipping point, on
December 28, 2020, amounted to P34,000.
The customers received the parts on January 6, 2021. Sales of P40,000 to the
customers for the parts were recorded by Fancy Company on January 2, 2021.
D. Retailers were holding P210,000 at cost and P250,000 at retail, of goods on
consignment from Fancy Company, at their stores on December 31, 2020.
E. Goods were in transit from a vendor to Fancy Company on December 31, 2020. The
ciat of goods was P25,000.
The goods were shipped FOB shipping point on December 29, 2020.
1. What is the correct amount of inventory?
a. 1,300,000 b. 1,320,000 23 |Chapter 10 – Inventories
Intermediate Accounting 1 | BSA-2201 c. 1,334,000 d. 1,090,000
2. What is the correct amount of accounts payable?
a. 835,000 b. 960,000 c. 975,000 d. 860,000
3. What is the correct amount of sales?
a. 9,250,000 b. 9,290,000 c. 9,040,000 d. 9,000,000
Quarry Company, a manufacturer of small tools, provided the following information for
the year ended December 31, 2020.
Inventory at December 31 based on physical count
1,750,000
Accounts payable at December 31
1.200,000
Net sales
8,500,000
Additional information
A. Included in the physical count were tools billed to a customer FOB shipping point on
December 31, 2020. These tools had a cost of P28,000 and were billed at P35,000.
Intermediate Accounting 1 | BSA-2201 The shipment was in loading dock waiting to be
picked up by the common carrier.
B. Goods were in transit from a vendor to Quarry Company on December 31, 2020.
The invoice cost was P50,000, and the goods were shipped FOB shipping point on
December 29, 2020.
C. Work in process inventory costing P20,000 was sent to an outside processor for
plating on December 30, 2020.
D. Tools returned by customers and held pending inspection in the returned goods area
on December 31, 2020 were not included in the physical count.
On January 5, 2021, the tools costing P26,000 were inspected and returned to
inventory.
Credit memos totaling P40,000 were issued to the customers on the same date.
E. Tools shipped to a customer FOB destination on December 26, 2020, were in transit
on December 31, 2020, and had a cost of P25,000.
Upon notification of receipt by the customer on January 5, 2021, Quarry Company

issued the sales invoice for P42,000.
F. Goods, with an invoice cost of P30,000, received from a vendor at 5:00 P.M. on
December 31, 2020 were recorded on a receiving report dated January 2, 2021.
The goods were not included in the physical count but the invoice was included in
accounts payable on December 31, 2020.
G. Goods received from a vendor on December 26, 2020 were included in the physical
count. 25 |Chapter 10 – Inventories
However, the related P60,000 vendor invoice was not included in accounts payable on
December 31, 2020 because the accounts payable copy of the receiving report was
lost.
H. On January 10, 2021, a monthly freight bill in the amount of P20,000 was received.
The bill specifically related to merchandise purchased in December 31, 2020, one-half
of which was still in the inventory on December 31, 2020.
The freight charge was not included in either the inventory or in accounts payable on
December 31, 2020.
1 What is the correct amount of inventory?
a. 1,883,000 b. 1,911,000 c. 1,885,000 d. 1,925,000
2 What is the correct amount of accounts payable?
a. 1,330,000 b. 1,280,000 c. 1,250,000 d. 1,270,000
3 What is the correct amount of net sales?
a. 8,460,000 b. 8,500,000 c. 8,465,000 d. 8,425,000 26 |Chapter 10 – Inventories
SOLUTIONS AND ANSWERS
Problem 10-9 ANSWER: D Merchandise Inventory 6,000,000 3,000,000 P6,300,000

P2,670,000 Physical count
P6,000,000
Goods shipped FOB shipping point on December 28, 2020 from a vendor Inventory,
December 31, 2020
3,000,000 P6,300,000
Problem 10-10 ANSWER: D Merchandise Inventory 2,500,000 100,000 400,000

P3,000,000 P2,670,000 Physical count
P2,500,000
Merchandise shipped FOB shipping point from a vendor on December 30, 2020
100,000
Goods billed to the customer FOB shipping point on December 30, 2020
400,000
Inventory, December 31, 2020
P3,000,000
Problem 10-11 ANSWER: B Inventory shipped on consignment to consignee Freight

paid by Dignity Company Consigned inventory 27 |Chapter 10 – Inventories
P 600,000 50,000 P 650,000
Problem 10-12 ANSWER: C List price Trade discounts
P 900,000 20% x 900,000
(180,000) P 720,000
10% x 720,000
(72,000)
Invoice price
P 648,000
Freight charge
50,000
Cost of purchase
P 698,000
Problem 10-13 ANSWER: B List price Trade discounts
P1,000,000 20% x 1,000,000
(200,000) P 800,000
10% x
800,000
(80,000)
Invoice price Cash discount
P 720,000 (5% x 720,000)
(36,000)
Net amount
P 684,000
Freight charge
50,000
Total remittance
P 734,000
Problem 10-14 ANSWER: D Accounts Payable 2,200,000 40,000 70,000 500,000

P2,670,000
Intermediate Accounting 1 | BSA-2201 Accounts payable per book
P2,200,000
Goods shipped lost in transit
40,000
Purchase return
(70,000)
Advance payment erroneously debited to accounts payable
500,000
Adjusted accounts payable
P2,670,000
Problem 10-15 ANSWER: C Accounts Payable 4,500,000 2,000,000 70,000 735,000 P

7,235,000 Accounts payable per book
P4,500,000
Undelivered checks
2,000,000
Unrecorded purchases on December 28, 2020 (750,000 x 98%) Adjusted accounts
payable
735,000 P7,235,000
Problem 10-16 ANSWER: A Merchandise Inventory 4,410,000 380,000 510,000

P4,410,000
Merchandise sold in transit, FOB destination
380,000
Merchandise purchased in transit, FOB shipping point
510,000
Problem 10-17 29 |Chapter 10 – Inventories
P5,300,000
Intermediate Accounting 1 | BSA-2201 ANSWER: A Merchandise Inventory 2,000,000

200,000 300,000 P2,500,000 P2,670,000 Reported inventory
P2,000,000
Goods sold in transit, FOB destination
200,000
Goods purchased in transit, FOB shipping point
300,000
P2,500,000
Problem 10-18 ANSWER: C Merchandise Inventory 5,000,000 500,000 300,000 50,000

P5,000,000
Inventory marked, ”hold for shipping instruction”
500,000
Goods in process
300.000
Goods shipped by a vendor, FOB seller
50,000
P5,850,000
Problem 10-19 ANSWER: D Merchandise Inventory 7,600,000 250,000 850,000 30 |

Chapter 10 – Inventories
Intermediate Accounting 1 | BSA-2201 260,000 350,000 840,000 P8,450,000 Inventory

before adjustments
P7,600,000
Goods purchased FOB shipping point
250,000
Goods sold FOB shipping point
(850,000)
Goods sold FOB destination
260,000
Goods purchased FAS
350,000
Goods sold FOB destination
840,000

P8,450,000
Problem 10-20 ANSWER: A Net sales per book
P5,000,000
Sales return
(50,000)
Goods shipped on December 31, 2020
300,000
Goods shipped on January 5, 2021 recorded on December 30, 2020
(200,000)
Adjusted net sales
P5,050,000
Problem 10-21 ANSWER: A Gross sales Estimated sales return (10% x 4,000,000) Net
sales
P4,000,000 (400,000) P3,600,000
Problem 10-22 ANSWER: D Zero because according to the “conservatism principle; Do

not count your chickens before they are hatched”. Thus, no sales should be recorded
yet until it’s paid.
Intermediate Accounting 1 | BSA-2201 Problem 10-23 ANSWER: B 50 000 gallons x

P30 = P1,500,000 (whichever are successfully delivered during the year will be
recognized as sales revenue)
Problem 10-24 QUESTION 1 ANSWER: A QUESTION 2 ANSWER: D QUESTION 3

ANSWER: C Inventory Accounts Payable Net sales Unadjusted P1,250,000 P1,000,000
P9,000,000 ( 165,000) ( 165,000) A ( 20,000) B 40,000 C 210,000 D 25,000 25,000 E
Adjusted P1,300,000 P 860,000 P9,040,000 Problem 10-25 QUESTION 1 ANSWER: B
QUESTION 2 ANSWER: A QUESTION 3 ANSWER: D Inventory Accounts Payable Net
sales Unadjusted P1,750,000 P1,200,000 P8,500,000 ( 35,0000) A 50,000 50,000 B
20,000 C 26,000 ( 40,000) D 25,000 E 30,000 F 60,000 G 10,000 20,000 H Adjusted
P1,911,000 P1,330,000 P8.425,000
Cedrick P. Dela Rosa Easy Problems
Corolla Company incurred the following costs: Materials Storage costs Delivery to
customers Irrecoverable Taxes
700,000 180,000 40,000 60,000
Materials 700,000 Irrecoverable Taxes 60,000 Total cost of Inventory 760,000
What amount should the inventory be measured? (Problem 26-5 , Practical Accounting
1, Valix 2016) - Cedrick P. Dela Rosa
Bentirosa Company incurred the following costs in relation to a certain product: Direct
Materials and Labor Variable production overhead Factory administrative costs Selling
and Distribution costs
180,000 25,000 15,000 20,000
DM and DL VR production overhead Factory admin. Costs Correct Amount
180,000 25,000 15,000 220,000
What is the correct measurement of the product? (Problem 26-6 , Practical Accounting
1, Valix 2016) - Cedrick Dela Rosa
Fenn Company provided the following information for the current year: Merchandise
purchased for resale Freight In Freight Out Purchase Return Interest on inventory loan
4,000,000 100,000 50,000 20,000 200,000
What is the inventoriable cost of the purchase? (Problem 26-7 , Practical Accounting 1,
Valix 2016) - Cedrick Dela Rosa
Merchandise purchased for resale Freight In Purchase Return Inventoriable Costs
4,000,000 100,000 (20,000) 4,080,000
Moderate
Ronna Company uses the perpetual inventory system. The entity reported the following
inventory transactions for the month of August: Units Unit Cost Total Cost Jan. 1 Beg
Balance Jan. 6 Purchase Feb. 5 Sale Mar. 5 Purchase Mar. 8 Purchase Return Apr. 10
Sale Apr. 30 Sales Return
8,000 3,000 10,000 11,000 800 7,000 300

70.00 70.50
560,000 211,500
73.50 73.50
808,500 58,800
March 5 purchases (4500 x 73.50) 330,750
If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
(Problem 29-3, Practical Accounting 1, Valix 2016) - Cedrick P. Dela Rosa
Mamamiya Company uses the weighted average inventory system. The entity reported
the following inventory transactions for the month of August: Units Unit Cost Jan. 1 Beg
Balance 8,000 70.00 Jan. 6 Purchase 3,000 70.50 Jan. 15 Sale 10,000 Jan. 18
Purchase 11,000 73.50 Jan. 22 Purchase Return 800 73.50 Jan. 25 Sale 7,000 Jan. 30
Sales Return 300
TGAS 8000 x 70 = 560,000 3000 x 70.50= 211500 10200 x 73.50 = 749700 21200 x
71.75 = 1521200 4500 x 71.75 = 322,875
What is the cost of the inventory on Jan 30? (Problem 29-7, Practical Accounting 1,
Valix 2016) - Cedrick P. Dela Rosa
Hero 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 7,2017.  Goods shipped FOB
shipping point on December 28, 2016, from a vendor to Hero were received and
recorded on January 4, 2017. The invoice cost was P300,000.
Physical count 6,000,000 Goods shipped FOB sp to Hero 300,000
6,300,000
(Problem 27-1 , Practical Accounting 1, Valix 2016) - Cedrick Dela Rosa
Difficult
Harutin mo ako Company provided the following data: Items included in the bodega
4,000,000 Items included in the specifically segregated per sale on contract 100,000
Items in receiving department, returned by customer, in good condition 50,000 Items
ordered and in the receiving department 400,000 Items ordered, invoice received but
goods not received. Freight is on account on seller 300,000 Items shipped today,
invoice mailed, FOB shipping point 250,000 Items shipped today, invoice mailed, FOB
destination 150,000 Items currently being used for window display 200,000 Items on
counter for sale 800,000 Items in receiving department, refused because of damage
50,000 Items in the shipping Department 250,000 What is the correct amount of
inventory? (Problem 26-1, Practical Accounting 1, Valix, 2016) – Cedrick Dela Rosa
Sana Ako Nalang Company has incurred the following costs during the current year:
Items included in the bodega 4,000,000 Items included in the specifically segregated
(100,000) Items in receiving department, returned by customer, in good condition
50,000 Items ordered and in the receiving department 400,000 Items shipped today,
invoice mailed, FOB destination 150,000 Items currently being used for window display
200,000 Items on counter for sale 800,000 Damage and unsalable items included in
count (50,000) Items in the shipping Department 250,000 Answer: 5,700,000
Cost of purchases based On vendors’ invoices 5,000,000 Trade discounts on

purchases already deducted from vendors’ invoices 500,000 Import duties 400,000
Freight & insurance on purchases 1,000,000 Other handling costs relating to imports
100,000 Salaries of accounting department 600,000 Brokerage commission paid to
agents for arranging imports 200,000 Sales commission paid to sales agents 300,000
After-sales warranty costs 250,000
Cost of purchases 5,000,000 Import duties 400,000 Freight and insurance 1,000,000
Other handling costs 100,000 Brokerage commission 200,000 Total cost of purchases
6,700,000
What is the total cost of purchases? (Problem 26-4, Practical Accounting 1, Valix 2016)
– Cedrick P. Dela Rosa
Umasa Company provided the following information at the end of current year. Finished
goods in storeroom, at cost, including overhead of P400,000 or 20% Finished goods in
transit, including freight charge of P20,000, FOB shipping point Finished goods held by
salesmen, at selling price, cost, P100,000 Goods in process, at cost of materials and
direct labor Materials Materials in transit, FOB destination Defective materials returned
to suppliers Shipping supplies Gasoline and oil for testing finished goods
Finished goods FG held by salesmen at cost Goods in process Materials Factory

supplies: Gasoline and oil Machine lubricants Correct inventory
2,000,000 100,000 900,000 1,000,000 110,000 60,000 4,170,000
Machine lubricants What is the correct amount of inventory? (Problem 26-3, Practical
Accounting 1, Valix 2016) – Cedrick Dela Rosa
Dianna P. Pastrana Audit of Inventory Problem
Solution
Easy: 1. Ram Company provided the following information at the end of current year.
Finished goods in storeroom, at cost, including overhead of P400,000 or 20% Finished
goods in transit, including freight charge of P20,000, FOB shipping point Finished goods
held by salesmen, at selling price, cost, P100,000 Goods in process, at cost of materials
and direct labor Materials Materials in transit, FOB destination Defective materials
returned to suppliers Shipping supplies Gasoline and oil for testing finished goods
Machine lubricants
Answer: 4,170,000
2,000,000 250,000 140,000 720,000 1,000,000 50,000 100,000 20,000 110,000 60,000
Finished goods FG held by salesmen at cost Goods in process Materials 1,000,000

Factory supplies: Gasoline and oil Machine lubricants Correct inventory
Goods in process, incl. OH Overhead Goods in process, excl. OH
2,000,000 100,000 900,000
110,000 60,000
4,170,000
100% 20% 80%
Total cost of GIP (720,000/80%) 900,000
What is the correct amount of inventory? (Practical Accounting by Valix, Problem 26-3,
page 307) 2. Corolla Company incurred the following costs: Materials Storage costs of
finished goods Delivery to customers Irrecoverable purchase taxes
Answer: 760,000 700,000 180,000 Materials Irrecoverable Historical cost 40,000 Total
cost of inventory 60,000
700,000 60,000 760,000
At what amount should the inventory be measured? (Practical Accounting by Valix,

Problem 26-5, page 309) 3. Bakun Company began operations late in 2015. For the first
quarter ended March 31, 2016, the entity provided the following information: Total
merchandise purchased through March 15, 2016 recorded at net
Answer: 6,000,000 Purchase (4,900,000/98%) Inv., beg. (1,500,000/150%)

4,900,000
5,000,000 1,000,000
Merchandise inventory on January 1, 2016, at selling price
Total gross amt. to be paid
6,000,000
1,500,000
All merchandise was acquired on credit and no payments have been made on accounts
payable since the inception of the entity. All merchandise is marked to sell at 50%
above invoice cost before time discounts of 2/10, n/30. No sales were made in 2016.
What amount of cash is required to eliminate the current balance in accounts payable?
(Practical Accounting by Valix, Problem 27-11, page 327) Moderate 1. Leila Company
conducted a physical count on December 31, 2016 which revealed a total cost of
P3,600,000. However, the following items were excluded from the count: Goods sold to
a customer are being held for the customer to call for at the customer’s convenience
Inv. Per physical count Inv. “hold for shipping inst.” Goods in process inventory Goods
shipped FOB seller 200,000 Correct inventory
A packing case containing a product standing in the shipping room when the physical
count was taken was not included in the inventory because it was marked “hold for
shipping instructions”
80,000
Good in process held by an outside processor for further processing
300,000
Good shipped by a vendor FOB seller on Dec. 28, 2016 and received by Leila Company
on January 10, 2017
Answer: 4,030,000 3,600,000 80,000 300,000 50,000 4,030,000
50,000
What is the correct inventory on December 31,2016? (Practical Accounting by Valix,

Problem 27-5, page 322) 2. Kew Co. reported accounts payable on December 31, 2016
at P2,200,000 before considering the following data:  Goods shipped to Kew FOB
shipping point on December 22, 2016, were lost in transit. The invoice cost of P40,000
was not recorded by Kew. On January 7,2017, Kew filed a P40,000 claim against the
Answer: 2,670,000 A/P per book Goods shipped FOB SP on Dec. 22,2016 and lost
Purchase returns
2,200,000 40,000 (70,000)
common carrier.
Advance payment error entry Adjusted A/P
500,000 2,670,000
 On December 27,2016, a vendor authorized Kew to return, for full credit, goods
shipped and billed at P70,000 on December 3,2016. The returned goods were shipped
by Kew on December 28,2016. A P70,000 credit memo was received and recorded by
Kew on January 5,2017.  On December 31,2016, Kew has a P500,000 debit balance in
accounts payable to Ross, a supplier, resulting from a P500,000 advance payment for
goods to be manufactured. What amount should be reported as accounts payable on
December 31, 2016? (Practical Accounting by Valix, Problem 27-7, page 324) 3. On
October 31,2016, Pamela Company reported that a flood caused severe damage to the
entire inventory. Based on recent history, the entity has a gross profit of 25% of sales.
The following information is available from the records for ten months ended October
31, 2016: Inventory, January 1 Purchases Purchase returns Sales Sales returns Sales
allowances
520,000 4,120,000 60,000 5,600,000 400,000 100,000
Answer: 3,900,000 Sales Sales returns Net sales
5,600,000 (400,000) 5,200,000
Cost ratio (100%-25%) COGS (75%*5,200,000)
75% 3,900,000
A physical inventory disclosed usable goods which can be sold for P70,000. What is the
estimated cost of goods sold for the ten months ended October 31, 2016? (Practical
Accounting by Valix, Problem 32-4, page 378) Difficult Answer: 2,500,000 1. Baritone
Company counted and reported the ending inventory on December 31, 2016 at
P2,000,000. None of the following items were included when the total amount of the
ending inventory was computed:
Reported Inventory Goods sold in Transit, FOB D Purchased in Transit, FOB SP

Correct amount of Inventory
2,000,000 200,000 300,000 2,500,000
Goods located in the entity’s warehouse that are on consignment from another entity
150,000
Goods sold by the entity and shipped on December 30 FOB destination were in transit
on December 31,2016 and received by the customer on January 2,2017
200,000
Goods purchased by the entity and shipped on December 30 FOB shipping point in
transit on December 31, 2016 and received by the entity on January 2, 2017
300,000
Goods sold by the entity and shipped on December 30 FOB shipping point were in
transit on December 31, 2016 and received by customer on January 2, 2017
400,000
What is the correct amount of inventory on December 31, 2016? (Practical Accounting
by Valix, Problem 27-3, page 320)
2. Joy Co. conducted a physical count on December 31, 2016 which revealed inventory
with a cost of P4,410,000. The following items were excluded from the physical count:
Merchandise held by Joy on consignment
610,000
Merchandise shipped by Joy FOB destination to a customer on December 31, 2016 and
was received by the customer on January 5, 2017
380,000
Merchandise shipped by Joy FOB shipping point to a customer on December 31, 2016
and was received by the customer on January 5, 2017
460,000
Merchandise shipped by a vendor FOB destination on December 31, 2016 was

received by the entity on January 5, 2017
830,000
Merchandise purchased FOB shipping point was shipped by the supplier on December
31, 2016 and received by Joy on January 5, 2017
510,000
Answer: 5,300,000 Physical count Goods sold in transit, FOB D. Goods purchased,
FOB SP Adjusted inventory
4,410,000 380,000 510,000 5,300,000
What is the correct amount of inventory on December 31, 2016? (Practical Accounting
by Valix, Problem 27-4, page 321) 3.Emco Co had the following transactions in 2016: 
Emco sold goods to a customer for P50,000, FOB shipping point on December 30,2016.
 Emco sold three pieces of equipment on a contract over a threeyear period. The sale
price of each piece of equipment is P100,000. Delivery of each piece of equipment is on
February 10 of each year In 2016, the customer paid a P200,000 down payment, and
will pay P50,000 per year in 2017 and 2018. Collectability is reasonably assured.  On
June 1, 2016, Emco signed a contract for P200,000 for goods to be sold on account.
Payment is to be made in two installments of P100,000 each on December 1, 2016 and
December 1,2017. The goods are delivered on October 1, 2016. Collection is
reasonably assured and the goods may not be returned.  Emco sold goods to a
customer on July 1, 2016 for P500,000. If the customer does not sell the goods to retail
customers by December 31,2017, the goods can be returned to Emco. The customer
sold the goods to retail customers on October 1, 2017. What amount of sales revenue
should be reported in the income statement for 2016? (Practical Accounting by Valix,
Problem 28-10, page 333)
Answer: 350,000 Goods sold FOB SP Delivery of 1 equip. 02/10/16 Goods sold on
account Total sales revenue
50,000 100,000 200,000 350,000
Harriet Ramos (AUDITING IN INVENTORIES)
PROBLEMS
SOLUTIONS
Easy
Easy
1. Corolla Company incurred the following costs: Materials Storage costs of finished
goods Delivery to customers Irrecoverable purchase taxes
700,000 180,000 40,000 60,000

Materials Irrecoverable purchase taxes
700,000 60,000
Total cost of inventory
760,000
At what amount should the inventory be measured? a. b. c. d.
880,000 760,000 980,000 940,000 All costs are inventoriable.
(Practical Financial Accounting, V1, pg. 309) 240,000 2. Eagle Company incurred the
following costs in relation to a certain product: Direct materials and labor Variable
production overhead Factory administrative costs Fixed production costs
180,000 25,000 15,000 20,000
What is the correct measurement of the product? a. 205,000 b. 225,000 c. 195,000 d.

240,000 (Practical Financial Accounting, V1, pg. 309)
3. Fen Company provided the following information for the current year: Merchandise
purchased for resale Freight in Freight out Purchase returns Interest on inventory loan
Merchandise purchased Freight in Purchase returns
4,000,000 100,000 ( 20,000 )
Inventor able cost
4,080,000
4,000,000 100,000 50,000 20,000 200,000
What is the inventoriable cost of the purchase? a. b. c. d.
4,280,000 4,030,000 4,080,000 4,130,000
(Practical Financial Accounting, V1, pg. 310) Moderate Moderate 1. On December 28,
2016, Kerr Company purchased goods costing P500,000 FOB Destination. These
goods were received on December 31, 2016. The costs incurred in connection with the
sale and delivery of goods were: Packaging for shipment Shipping Special handling
charges
10,000 15,000 25,000

On December 31, 2016, what total cost should be included in inventory? a. b. c. d.
545,000 535,000 520,000 500,000
(Practical Financial Accounting, V1, pg. 310)
Answer: 500,000 When goods are purchased FOB Destination, the seller is responsible
for cost incurred in transporting the goods to the buyer.
2. Venice Company included the following in inventory at year end: Merchandise out on
consignment at sales price, including 40% markup om sales Goods purchased in
transit, shipped FOB Shipping point Goods held on consignment by Venice
Markup on goods on consignment (1,400,000 x 40%) Goods held on consignment Total

reduction
560,000 900,000 1,460,000
1,400,000 1,200,000 900,000
At what amount should the inventory be reduced? a. b. c. d.
1,460,000 3,500,000 2,300,000 1,740,000
(Practical Financial Accounting, V1, pg. 310) 3. Harris Company provided the following
information for an inventory at year end: Historical cost Estimated selling price
Estimated completion and selling cost Replacement cost What amount should be
reported as inventory at year end? a. b. c. d.
1,100,000 1,150,000 1,200,000 1,300,000
Historical cost Net realizable value (1,300,000-150,000)
1,200,000 1,150,000
LCNRV
1,150,000
Difficult
Difficult
1. Joy Company conducted a physical count on December 31, 2016 which revealed
inventory with a cost of P4, 410,000. The following items were excluded from physical
count:  
Merchandise held by Joy on consignment Merchandise shipped by Joy FOB Destination

to a customer on December 31, 2016 and was received by the customer on January 5,
2017 Merchandised shipped by Joy FOB shipping point to a customer On December
31, 2016 and was Received by the customer on January 5, 2017 Merchandise shipped
by the vendor FOB destination on December 31, 2016 was received by Joy on January
5, 2017 Merchandise purchased FOB shipping point by the supplier on December 31,
2016 and received by Joy on Jan 5, 2017
610,000
380,000
460,000
830,000
510,000
What is the correct amount of inventory on December 31, 2016? a. 5,300,000 b.

4,690,000 c. 3,800,000 d. 4,920,000
Physical count 4,410,000 Goods sold in transit, FOB DP 380,000 Goods purchased in
transit, FOB SP 510,000 Adjusted inventory
5,300,000
2. Leila Company conducted a physical count on December 31, 2016 which revealed
total cost of P3,600,000. However the following items were excluded from the count;
Inventory per physical count 3,600,000 Inventory marked “hold for shipping Instructions”
80,000 Goods in process inventory 300,000 Goods shipped FOB seller 50,000 Correct
inventory


Goods sold to a customer are being held for the customer to call for at the customer’s
convenience A packing case containing a product standing room when the physical
count was taken was not included in the invent tory because it was marked “hold for
shipping instructions” Goods in process held by an outside processor for further
processing Goods shipped by a vendor FOB seller on December 28, 2016 and received
by Leila Company on Jan 10, 2017
4,030,000
The term FOB seller is the same as FOB shipping point 200,000
80,000
300,000
50,000
What is the correct inventory on December 31, 2016? a. 4,180,000 b. 4,230,000 c.

3,980,000 d. 4,030,000
3. Brilliant Company has incurred the following costs during the current year:  

Cost of purchases based on 5,000,000 vendor’s invoices Trade discounts on purchases

already deducted from vendor’s invoices 500,000 Import duties 400,000 Freight and
insurance on purchases 1,000,000 Other handling costs relating to imports 100,000
Salaries of accounting dept. 600,000 Brokerage commission paid 200,000 to agents for
arranging imports Sales commission paid to sales agent 300,000 After sales warranty
costs 250,000
What is the total cost of purchases? a. b. c. d.
5,700,000 6,100,000 6,700,000 6,500,000
Cost of purchases Import duties Freight and insurance Other handling cost Brokerage
commission Total cost of purchases
5,000,000 400,000 1,000,000 100,000 200,000 6,700,000
The salaries of accounting department, sales commission and after sales warranty
costs are not inventor able but should be expensed immediately.
Simon, Chenah Mae V. Easy PROBLEM 1 Hero 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 7,2017.  Goods shipped FOB shipping point on December 28, 2016, from a
vendor to Hero were received and recorded on January 4, 2017. The invoice cost was
P300,000. What amount should be reported as inventory on December 31, 2016?
-Practical 1 Valix Page 318
Solution to problem 1 Physical count Goods shipped FOB sp to Hero
PROBLEM 2 Chris company provided the following information for the current year: 
Merchandise purchased for resale P4,000,000  Freight in 100,000  Freight out 50,000
 Purchase returns 20,000  Interest on inventory loan 200,000 What is the
inventoriable cost of the purchase? -Practical 1 Valix Page 310
Solution to problem 2
PROBLEM 3 On December 28, 2016, Kerr Company purchased goods costing

P500,000 FOB destination. These goods were received on December 31, 2016. The
costs incurred in connection with the sale and delivery of the goods were:
6,000,000 300,000 6,300,000
Merchandise purchased P4,000,000 Freight in 100,000 Purchase returns (200,000)

4,080,000
Solution to problem 3 P500,000
Packaging for shipments Shipping Special handling
10,000 15,000 25,000
On December 31, 2016, what total cost should be included in inventory? -Practical 1
Valix Page 310
Moderate PROBLEM 1 Venice Company included the following in inventory at year-end:

- Merchandise out on consignment at sale price, including 40% markup on sales
P1,400,000. - Goods purchased in transit, shipped FOB shipping point P1,200,000. -
Goods held on consignment by Venice P900,000. At what amount should the inventory
be reduced?
Solution to problem 1 Markup on goods on Consignment Goods held on consignment
560,000 900,000 1,460,000
-Practical 1 Valix Page 314 PROBLEM 2 Lin Company sells merchandise at a gross
profit of 30%. On June 30, 2016, all of the inventory was destroyed by fire. The following
figures pertain to the operations for the six months ended June 30, 2016: Net sales
Beginning inventory Net purchases
8,000,000 2,000,000 5,200,000
What is the estimated cost of the destroyed inventory? -Practical 1 Valix Page 374
PROBLEM 3 Mae Company reported during the current
Solution to problem 2 Beginning inventory Net purchases CGAS COGS (8M x 70%)
Ending Inv. Destroyed by fire
2,000,000 5,200,000 7,200,000 (5,600,000) 1,600,000
year: Beginning inventory Net purchases Net sales
500,000 2,500,000 3,200,000
A physical count at year-end resulted in an inventory of P575,000. The gross profit on

sales had remained constant at 25%.
Solution to problem 3 Beg. Inv. Net purchases CGAS COGS (3.2M x 75%) Ending
inventory Physical inventory Missing Inventory
500,000 2,500,000 3,000,000 (2,400,000) 600,000 575,000 25,000
The entity suspected that some inventory may have been taken by a new employee.
What is the estimated cost of missing inventory at year-end? -Practical 1 Valix Page
375 Hard Calasiao, Inc., owner of a trading company, engaged your services as auditor.
There is a discrepancy between the company’s income and the sales volume. The
owner suspects that the staff is committing theft. You are to determine whether or not
this is true your investigations revealed the following: 1. Physical inventory, taken
December 31, 2010 under your observation showed that cost was P265,000 and net
realizable value, P244,000. The inventory on January 1, 2010 showed cost of P390,000
and net realizable value of P375,000. It is the corporation’s practice to value inventory
at “lower of cost or NRV.” Any loss between cost and NRV is included in “Other
expenses.” 2. The average gross profit rate was 40% of net sales. 3. The accounts
receivable as of January 1, 2010 were P135,000. During 2010, accounts receivable
written off during the year amounted to P10,000. Accounts receivable as of December
Solution to # 1 A/R, 12/31/10 Accounts written off Collections A/R, 1/1/10 Sales in 2010
375,000 10,000 3,000,000 (135,000) 3,250,000
Solution to #2 A/P, 12/31/10 Payments A/P, 1/1/10 Purchases in 2010
300,000 2,000,000 (375,000) 1,925,000
Solution # 3 Inventory, 1/1/10 (at cost) 390,000 Add purchases 1,925,000 CGAS
2,315,000 Less Cost of sales (3,250,000 x 60%) (1,950,000) Estimated inv., 12/31/10 at
cost 365,000 Inv., 12/31/10 per physical
31, 2010 were P375,000/ 4. Outstanding purchase invoices amounted to P300,000 at

the end of 2010. At the beginning of 2010 they were P375,000. 5. Receipts from
customers during 2010 amounted to P3,000,000. 6. Disbursements to merchandise
creditors amounted to P2,000,000. Based on the above and the result of your audit,
determine the following: 1. The total sales in 2010 2. The total purchases in 2010 3. The
amount of inventory shortage as of December 31, 2010
-Reviewer in Auditing problems by Ocampo Page 180
count at cost Inventory shortage
(265,000) 100,000
OSTULANO, ELGENEROSE B. EASY: Problem 1 Solution: In connection with your

audit of the Lake Unshipped goods P 100,000 Company, you reviewed its inventory as
of Purchased merchandise shipped 700,000 December 31, 2006 and found the
following items: FOB shipping point (a) A packing case containing a product costing
Goods used as collateral for a 500,000 P100,000 was standing in the shipping room
when loan the physical inventory was taken. It was not Total P 1,300,000 included in the
inventory because it was marked “Hold for shipping instructions.” The customer’s order
was dated December 18, but the case was shipped and the costumer billed on January
10, 2007. (b) Merchandise costing P600,000 was received on December 28, 2006, and
the invoice was recorded. The invoice was in the hands of the purchasing agent; it was
marked “On consignment”. (c) Merchandise received on January 6, 2007, costing
P700,000 was entered in purchase register on January 7. The invoice showed shipment
was made FOB shipping point on December 31, 2006. Because it was not on hand
during the inventory count, it was not included. (d) A special machine costing P200,000,
fabricated to order for a particular customer, was finished in the shipping room on
December 30. The customer was billed for P300,000 on that date and the machine was
excluded from inventory although it was shipped January 4, 2007. (e) Merchandise
costing P200,000 was received on January 6, 2007, and the related purchase invoice
was recorded January 5. The invoice showed the shipment was made on December 29,
2006, FOB destination. (f) Merchandise costing P150,000 was sold on an installment
basis on December 15. The customer took possession of the goods on that date. The
merchandise was included in inventory because Alcala still holds legal title. Historical
experience suggests that full payment on installment sale is received approximately
99% of the time. (g) Goods costing P500,000 were sold and delivered on December 20.
The goods were included in the inventory because the sale was accompanied by a
purchase agreement requiring
Alcala to buy back the inventory in February 2007. Question: Based on the above and
the result of your audit, how much of these items should be included in the inventory
balance at December 31, 2006? a. P1,300,000 b. P 800,000
c. P1,650,000 d. P1,050,000
Problem 2 Presented below is a list of items that may or may not reported as inventory
in a company’s December 31 balance sheet: (a) Goods out on consignment at another
company’s store P 800,000 (b) Goods sold on installment basis 100,000 (c) Goods
purchased f.o.b. shipping point that are in transit at December 31 120,000 (d) Goods
purchased f.o.b. destination that are in transit at December 31 200,000 (e) Goods sold
to another company, for which our company has signed an agreement to repurchase at
a set price that covers all costs related to the inventory 300,000 (f) Goods sold where
large returns are predictable 280,000 (g) Goods sold f.o.b. shipping point that are in
transit December 31 120,000 (h) Freight charges on goods purchased 80,000 (i)
Factory labor costs incurred on goods still unsold 50,000 (j) Interest cost incurred for
inventories that are routinely manufactured 40,000
(a) Goods out on consignment at another company’s store P 800,000 (c) Goods
purchased f.o.b. shipping point that are in transit at December 31 120,000 (e) Goods
sold to another company, for which our company has signed an agreement to
repurchase at a set price that covers all costs related to the inventory 300,000 (h)
Freight charges on goods purchased 80,000 (i) Factory labor costs incurred on goods
still unsold 50,000 (l) Materials on hand not yet placed into production 350,000 (n) Raw
materials on which a the company has started production, but which are not completely
processed 280,000 (o) Factory supplies 20,000 (q) Costs identified with units completed
but not yet sold 260,000 (r) Goods sold f.o.b. destination that are in transit at December
31 40,000 Total P 2,300,000
(k) Costs incurred to advertise goods held for resale 20,000 (l) Materials on hand not yet
placed into production 350,000 (m) Office supplies 10,000 (n) Raw materials on which a
the company has started production, but which are not completely processed 280,000
(o) Factory supplies 20,000 (p) Goods held on consignment from another company
450,000 (q) Costs identified with units completed but not yet sold 260,000 (r) Goods
sold f.o.b. destination that are in transit at December 31 40,000 (s) Temporary
investment in stocks and bonds that will be resold in the near future 500,000 Question:
How much of these items would typically be reported as inventory in the financial
statements? a. P2,300,000 b. P2,000,000
c. P2,260,000 d. P2,220,000
Problem 3 Ocean Company provided the following data with respect to its inventory: (a)
Items counted in the bodega P 4,000,000 (b) Items included in the count specifically
segregated per sale contract 100,000 (c) Items in receiving department, returned by
customer in good condition 50,000 (d) Items ordered and in the receiving
Solution: (a) Items counted in the bodega P 4,000,000 (b) Items included in the count
specifically segregated per sale contract ( 100,000) (c) Items in receiving department,
returned by customer in good condition 50,000 (d) Items ordered and in the receiving
department, invoice not received 400,000
department, invoice not received 400,000 (e) Items ordered, invoice received but goods
not received. Freight is on the account of seller 300,000 (f) Items shipped today, invoice
mailed, FOB shipping point 250,000 (g) Items shipped today, invoice mailed, FOB
destination 150,000 (h) Items currently being used for window Display 200,000 (i) Items
on counter for sale 800,000 (j) Items in receiving department, refused by Ocean
Company because of damage 180,000 (k) Items included in count, damaged and
unsalable 50,000 (l) Items in the shipping department 250,000
(g) Items shipped today, invoice mailed, FOB destination 150,000 (h) Items currently
being used for window Display 200,000 (i) Items on counter for sale 800,000 (k) Items
included in count, damaged and unsalable ( 50,000) (l) Items in the shipping department
250,000 Total P 5,700,000
Question: What is the correct amount of inventory? a. P5,700,000 b. P6,000,000
c. P5,800,000 d. P5,150,000
MODERATE: Problem 1 On August 1 of the current year, River Company recorded

purchases of inventory of P800,000 and P1,000,000 under credit terms of 2/15, net 30.
The payment due on the P800,000 purchase was remitted on August 16. The payment
due on the P1,000,000 purchase was remitted on August 31. Under the net method and
the gross method, these purchases should be included at what respective amounts in
the determination of cost of goods available for sale? Net Method a. P 1,784,000
Gross Method P 1,764,000
Solution: Net Method: Purchases (800,000 + 1,000,000) 1,800,000 Purchase discount

taken (2% x 800,000) ( 16,000) Purchases (800,000 + 1,000,000) ( 20,000) Net amount
1,764,000 Gross Method: Purchases 1,800,000
b. P 1,764,000 c. P 1,764,000 d. P 1,800,000

P 1,800,000 P 1,784,000 P 1,764,000
Problem 2 You obtained the following information connection with your audit of Sea
Corporation: Cost Retail Beginning inventory P1,987,200 P2,760,000 Sales 7,812,000
Purchases 4,688,640 6,512,000 Freight in 94,560 Mark ups 720,000 Mark up
cancellations 120,000 Markdown 240,000 Markdown cancellations 40,000
Purchase discount taken 16,000) Net 1,764,000
( purchases
Solution: in
Cost Retail Beginning inventory P1,987,200 P2,760,000 Purchases 4,688,640

6,512,000 Freight in 94,560 Net mark up (P720,000 - P120,000) 720,000 Net mark
down (P240,000 - P40,000) 120,000 Goods available for sale P6,770,400 P9,672,000
Cost Ratio (P6,770,400/P9,672,000) = 70%
Sea Corp. uses the retail inventory method in estimating the values of its inventories
and costs. The cost ratio to be used considering the provisions of PAS 2 is ___. a.
68.58% b. 69.20%
c. 70.00% d. 75.78%
Problem 3 A physical count on December 31, 2017 revealed that Gulf Company had
inventory with a cost of P4,410,000. The audit identified that the following items were
excluded from this amount: (a) Merchandise of P610,000 is held by Gulf on
consignment. (b) Merchandise costing P380,000 was shipped by Gulf FOB destination
to a customer on December 31, 2017. The customer was expected to receive the goods
on January 5, 2018. (c) Merchandise costing P460,000 was shipped by
Solution: Physical count 4,410,000 Golds sold in transit, FOB destination 380,000
Goods purchased in transit, FOB shipping point 510,000 Adjusted inventory 5,300,000
Gulf FOB shipping point to a customer on December 29, 2017. The customer was
expected to receive the goods on January 5, 2018. (d) Merchandise costing P830,000
shipped by a vendor FOB destination on December 31, 2017 was received by Gulf on
January 5, 2018. (e) Merchandise costing P510,000 purchased FOB shipping point was
shipped by the supplier on December 31, 2017 and received by Gulf on January 5,
2018. Question: What is the correct amount of inventory on December 31, 2017? a.
P5,300,000 b. P4,690,000 a. P3,800,000 b. P4,920,000 DIFFICULT: Problem: The Bay
Co. values its inventory at the lower of FIFO cost or net realizable value (NRV). The
inventory accounts at December 31, 2017, had the following balances:
Solutions: Question No. 1 Estimated selling price P24,000 Less refinishing costs 6,800
Raw materials P Net realizable value 650,000 17,200 Work in process Less normal
profit 1,200, 3,200 000 Valuation of repossessed inventory Finished goods P14,000
1,640, 000 Question No. 2 Estimated selling price (NRV) The following are some of the
transactions that P6,400 affected the inventory of the Bay Company during Less normal
profit (6,400 x 25%) 2018. 1,600 Valuation of trade-in inventory Jan. 8 Bay Co.
purchased raw materials with a list P4,800 price of P200,000 and was given a trade
discount of 20% and 10%; terms 2/15, n/30. Question No. 3 Bay values inventory at the
net invoice price. Accounts receivable (P59,200 – P8,000) Feb. 14 Bay Co.
repossessed an inventory item from a P51,200 customer who was overdue in making
Trade-in inventory payment. The unpaid balance on the sale is 4,800
P15,200. The repossessed merchandise is to Sales be refinished and placed on sale. It

is P56,000 expected that the item can be sold for P24,000 after estimated refinishing
costs of P6,800. The normal profit for this item is considered to be P3,200. Mar. 1
Refinishing costs of P6,400 were incurred on the repossessed item. Apr. 3 The
repossessed item was resold for P24,000 on account, 20% down. Aug. 30 A sale on
account was made of finished goods that have a list price of P59,200 and a cost
P38,400. A reduction of P8,000 off the list price was granted as a trade-in allowance.
The trade-in item is to be priced to sell at P6,400 as is. The normal profit on this type of
inventory is 25% of the sales price. Questions: Based on the above and the result of
your audit, answer the following: (Assume the client is using perpetual inventory
system) 1. The repossessed inventory on Feb. 14 is most likely to be valued at _____.
2. The trade-in inventory on Aug. 30 is most likely to be valued at _____. 3. How much
will be recorded as Sales on Aug. 30?
References: Practical Accounting One by Valix Cebu CPAR Center, Inc.
Jimerezel Loyde A. Lara
PROBLEMS
SOLUTIONS
A. EASY
A. EASY
1)Candy Company incurred the following costs: Materials 700,000 Storage costs
180,000 Delivery to customers 40,000 Irrecoverable purchase taxes 60,000 At what
amount should the inventory be measured? (Problem 26-5, Practical Accounting
Volume 1 by Conrado T. Valix) 2) Unique Company incurred the following costs in
relation to a certain product: Direct materials and labor Variable production overhead
Factory administrative costs Fixed production costs
1) Materials Irrecoverable purchase Taxes Total cost of inventory
700,000 60,000 760,000

2) Direct materials and labor Variable production overhead Factory administrative costs
Fixed production costs Product measurement
180,000 25,000 15,000 20,000 240,000
180,000 25,000 15,000 20,000
What is the correct measurement of the product? (Problem 26-6, Practical Accounting
Volume 1 by Conrado T. Valix) 3) Ferb Company provided the following information for
the current year: Merchandise purchased For resale 4,000,000 Freight in 100,000
Freight out 50,000 Purchase returns 20,000 Interest on inventory loan 200,000 What is
the inventoriable cost of the purchase? (Problem 26-7, Practical Accounting
3) Merchandise purchased Freight in Purchase returns Inventoriable cost
4,000,000 100,000 (20,000) 4,080,000
Volume 1 by Conrado T. Valix)
B. MODERATE B. MODERATE 1) ABC Company has incurred the following costs

during the current year: Cost of purchases based On vendors’ invoices 5,000,000 Trade
discounts on purchases already deducted from vendors’ invoices 500,000 Import duties
400,000 Freight & insurance on purchases 1,000,000 Other handling costs relating to
imports 100,000 Salaries of accounting department 600,000 Brokerage commission
paid to agents for arranging imports 200,000 Sales commission paid to sales agents
300,000 After-sales warranty costs 250,000
1) Cost of purchases 5,000,000 Import duties 400,000 Freight and insurance 1,000,000
Other handling costs 100,000 Brokerage commission 200,000 Total cost of purchases
6,700,000
What is the total cost of purchases? (Problem 26-4, Practical Accounting Volume 1 by
Conrado T. Valix)
2) Chill Company commenced operations during the year as large importer and exporter
of seafood. The imports were all 2) from one country overseas. The entity Percent of
inventory reported the following data: at year end (3,000,000/12,000 purchases)
Purchases during year 12,000,000 Inventoriable shipping costs Shipping costs from
from overseas Overseas 1,500,000 (25% x 1500,000) Shipping costs to export
Customers 1,000,000
.25
375,000
Inventory at year end
3,000,000
What amount of shipping cost be included in the year-end inventory valuation?

(Problem 26-14, Practical Accounting Volume 1 by Conrado T. Valix)
3) Blonde Company shipped inventory on consignment to Heart Company with original

cost to 500,000. Heart paid 3) Consignment sales 320,000 12,000 for advertising that
was Cost of goods sold reimbursable from Blonde. (40% x 500,000) (200,000)
Advertising (12,000) At the end of the year 40% of the Commission inventory was sold
for 320,000. The (10% x 320,000) (32,000) agreement stated that a commission of Net
income from consignment 76,000 10% will be provided to Heart for all sales. What
should amount be reported as net income from the consignment? (Problem 26-13,
Practical Accounting Volume 1 by Conrado T. Valix)
C. Difficult 1) Daya Company reported inventory on Dec. 31, 2016 at 6,000,000 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 Dec. 30, 2016. These goods had a cost of 125,000
and were picked up by the carrier on Jan 7, 2017  Goods shipped FOB shipping point
on Dec. 28, 2016 from a vendor to Daya were received and recorded on Jan. 4, 2017.
The invoice cost was 300,000.
C. Difficult 1) Physical count 6,000,000 Goods shipped FOB shipping point on Dec. 30,
2016 to Daya and received Jan. 4, 2017 300,000 Inventory, Dec. 31, 2016 6,300,000
What amount should be reported as inventory on Dec. 31, 2016? (Problem 27-1,
Practical Accounting Volume 1 by Conrado T. Valix)
2) Soprano Company counted and reported the ending inventory on Dec. 31,2016 at
2,000,000 None of the following items were included when the total amount of the
ending inventory was computed: Goods located in the entity’s warehouse that are on
consignment from another entity 150,000 Goods sold by the entity and shipped on Dec.
30 FOB destination were in transit on Dec 31 2016 and received by the customer on
Jan 2 2017 200,000 Goods purchased by the entity and shipped on Dec 30 FOB
shipping point were in transit on Dec 31 2016 and received by the entity on Jan 2 2017
300,000 Goods sold by the entity and shipped on Dec 30 FOB shipping point were in
transit on Dec 31 2016 and received by customer on Jan 2 2017 400,000 What is the
correct amount of inventory on Dec 31 2016? (Problem 27-3, Practical Accounting
Volume 1 by Conrado T. Valix) 3) Saya lang Company conducted a
2) Reported inventory 2,000,000 Goods sold in transit FOB destination 200,000 Goods
purchased in transit, FOB shipping point 300,000 Correct amount of Inventory
2,500,000
physical cout on Dec 31 2016 which revealed inventory with a cost of 4,410,000. The
following items were excluded from the physical count: Merchandise held by Saya lang
on consignment 610,000 Merchandise shipped by Saya lang FOB destination to a
customer on Dec 31 2016 and was received by the customer on Jan 5 2017 380,000
Merchandise shipped by Saya lang FOB shipping point to a customer on Dec 31 2016
and was received by the customer on Jan 5 2017 460,000 Merchandise shipped by a
vendor FOB destination on Dec. 31 2016 was received by Saya lang on Jan 5 2017
830,000 Merchandise purchased FOB shipping Point was shipped by the supplier On
Dec 31 2016 and received by Joy on Jan 5 2017 510,000 What is the correct amount of
inventory on December 31, 2016? (Problem 27-4, Practical Accounting Volume 1 by
Conrado T. Valix)
3) Physical count 4,410,000 Goods sold in transit, FOB destination 380,000 Goods
purchased in transit FOB shipping point 510,000 Adjusted inventory 5,300,000
Renz A. Repollo PROBLEMS EASY 1. Stone Company had the following transactions
during December 2016: Inventory shipped in consignment to Beta Company 1,800,000
Freight prepaid by stone 90,000 Inventory received on consignment from Alpha
company 1,200,000 Freight paid by Alpha 50,000
SOLUTION
Inventory shipped in consignment to Beta Company Freight prepaid by stone
What amount should be included in inventory on December 31, 2016? (Problem 26-9,
Practical Accounting 1, Valix, 2016)
1,800,000 90,000 1,890,000
Renz A. Repollo 2. On December 28, 2016, Kerr Company purchased goods costing
500,000 FOB Destination. These goods were received on December 31, 2016. The
costs incurred in connection with the sale and delivery of goods were: Packaging for
shipment Shipping Special handling charges
10,000 15,000 25,000
Purchased cost
500,000
On December 31, 2016, what total cost should be included in inventory? (Problem 26-8,
Practical Accounting 1, Valix, 2016) Renz A. Repollo 3. Fenn Company provided the
following information for the current year: Merchandise purchased for resale 4,000,000
Freight in 100,000 Freight out 50,000 Purchase returns 20,000 Interest on inventory
loan 200,000 What is the inventoriable cost of the purchase? (Problem 26-7, Practical
Accounting 1, Valix, 2016)
Merchandise purchased Freight in Purchase returns Inventoriable cost
4,000,000 100,000 (20,000) 4,080,000
Renz A. Repollo MODERATE 1. Aman Company provided the following data: Items
included in the bodega 4,000,000 Items included in the specifically segregated per sale
on contract 100,000 Items in receiving department, returned by customer, in good
condition 50,000 Items ordered and in the receiving department 400,000 Items ordered,
invoice received but goods not received. Freight is on account on seller 300,000 Items
shipped today, invoice mailed, FOB shipping point 250,000 Items shipped today, invoice
mailed, FOB destination 150,000 Items currently being used for window display 200,000
Items on counter for sale 800,000 Items in receiving department, refused because of
damage 50,000 Items in the shipping Department 250,000
Items included in the bodega 4,000,000 Items included in the specifically segregated
(100,000) Items in receiving department, returned by customer, in good condition
50,000 Items ordered and in the receiving department 400,000 Items shipped today,
invoice mailed, FOB destination 150,000 Items currently being used for window display
200,000 Items on counter for sale 800,000 Damage and unsalable items included in
count (50,000) Items in the shipping Department 250,000 5,700,000
What is the correct amount of inventory? (Problem 26-1, Practical Accounting 1, Valix,
2016) Renz A. Repollo 2. Lunar Company included the following items under inventory:
Materials 1,400,000 Advances for materials ordered 200,000 Goods in process 650,000
Unexpired insurance on inventory 60,000 advertising catalogs and shipping cartons
150,000 Finished goods in factory 2,000,000 Finished goods in entity-owned retail
store, including 50% profit cost 750,000
Materials 1,400,000 Goods in process 650,000 Finished goods in factory 2,000,000

Finished goods in entity-owned retail store (750k/150%) 500,000 Finished goods in
hand of consignees (400k x 60%) 240,000 Finished goods in transit to customers,
shipped FOB destination at cost 250,000 Finished goods out on approval , at cost
100,000 Materials in transit (330k + 30k) 360,000 Correct inventory 5,500,000
Finished goods in hand of consignees including 40% profit on sales 400,000 Finished
goods in transit to customers, shipped FOB destination at cost 250,000 Finished goods
out on approval , at cost 100,000 Unsalable finished goods, at cost 50,000 Office
supplies 40,000 Materials in transit, shipped FOB shipping point, excluding freight of
30,000 330,000 Goods held on consignment, at sales price, cost 100,000 200,000 What
is the correct inventory? (Problem 26-2, Practical Accounting 1, Valix, 2016) Renz A.
Repollo 3. Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on vendor’s invoices 5,000,000 Trade discounts on purchases
already deducted from vendor’s invoices 500,000 Import duties 400,000 Freight and
insurance on purchases 1,000,000 Other handling costs relating to imports 100,000
Salaries of accounting department 600,000 Brokerage commission paid to agents for
arranging imports 200,000 Sales commission paid to sales agent 300,000 After-sales
warranty costs 250,000 What is the total cost of purchases? (Problem 26-4, Practical
Accounting 1, Valix, 2016) Renz A. Repollo DIFFICULT 1. Hero Company reported
inventory on
Cost of purchases based on vendor’s invoices 5,000,000 Import duties 400,000 Freight
and insurance on purchases 1,000,000 Other handling costs relating to imports 100,000
Brokerage commission paid to agents for arranging imports 200,000 Total cost of
purchase 6,700,000
December 31, 2016 at 6,000,000 based on 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 125,000 and were picked up by the
carrier on January 7, 2017.  Goods shipped FOB shipping point on December 28, 2016
form vendor to Hero were received and recorded on January 4, 2017. The invoice cost
was 300,000. What amount should be reported as inventory on December 31, 2016?
(Problem 27-1, Practical Accounting 1, Valix, 2016)
Physical count Goods shipped FOB shipping point Inventory, Dec. 31, 2016
6,000,000
Physical count Inventory marked “hold for shipping instructions” Correct amt. of inv.
5,000,000
300,000 6,300,000
Renz A. Repollo 2. Reverend Company conducted a physical count on December 31,

2016 which revealed merchandise with total cost of 5,000,000. However, further
investigation revealed that the following items were excluded from the count: 
Goods sold to a customer, which are being for the customer to call at the customer’s
convenience with a cost of 200,000. A packaging case containing a product costing
500,000 was standing in the shipping room when the physical inventory was taken. It
was not included in the inventory because it was marked “hold for shipping instructions”.
500,000 5,500,000
The investigations revealed that the customer’s order was dated December 28, 2016,
but that the case was shipped and the customer billed on January 4, 2017. A special
machine costing 250,000, fabricated to order for a customer, was finished and
specifically segregated at the back part of shipping room on December 31, 2016. The
customer was billed on that date and the machine was excluded from inventory
although it was not shipped on January 2, 2017.
What is the correct amount of inventory that should be reported on December 31, 2016?
(Problem 27-2, Practical Accounting 1, Valix, 2016) Renz A. Repollo 3. Leila Company
conducted a physical count on December 31, 2016 which revealed total cost of
3,600,000. However, the following items were excluded from the count: 

Goods sold to a customer are being held for the customer to call for at the customer’s
convenience. 200,0000 A packaging case containing a product standing in the shipping
room when the physical count was taken was not included in the inventory because it
was marked “hold for shipping instructions” 80,000 Goods in process held by an outside
processor for further processing 300,000 Good shipped bt a vendor FOB seller on
December 28, 2016 and received by Leila Company
Physical count 3,600,000 Inventory marked “hold for shipping instructions” 80,000
Goods in process inventory 300,000 Goods shipped FOB seller 50,000 Correct amt. of
inventory 4,030,000
on January 10, 2017. What is the correct inventory on December 31, 2016? (Problem
27-5, Practical Accounting 1, Valix, 2016) Renz A. Repollo
GAGATAM, CHRISTIANETH N. BSA-IV AUDITING PROBLEM (INVENTORY) EASY:

VALIX PROBLEM 26-5 (IFRS)
SOLUTIONS:
1.Corolla Co. incurred the following costs:
Q: At what amount should the inventory be measured?
Materials
Materials
700,000
Storage costs of finished goods 180,000

Irrecoverable purchase taxes
60,000
Delivery to customers
40,000
Total cost of inventory
760,000
Irrecoverable purchase taxes
60,000
700,000
2.Eagle Co. incurred the following costs in relation to a certain product:
Q: What is the correct measurement of the product?
Direct materials and labor
Ans. All costs are inventoriable.
180,000
240,000 Variable production overhead 25,000 Factory administrative costs
15,000
Fixed production costs
20,000
3.Fenn Co. provided the following information for the current year:
Q: What is the inventoriable cost of the purchase?
Merchandise purchased for resale
Merchandise purchased
4,000,000
4,000,000
Freight in
100,000
Freight in
100,000
Freight out
50,000
Purchase returns
(20,000)
Purchase returns
20,000
Ans. Inventoriable cost
4,080,000
Interest on inventory loan
200,000
MODERATE: VALIX
1.Neth Co. had sales of ₱ 5,000,000 during December. Q: What amount should be
reported for net Experience had shown that merchandise equaling 7% sales in the
income statement for the of sales will be returned within 30 days and an month of
December? additional 3% will be returned within 90 days. Gross sales 5,000,000
Returned merchandise is readily resalable. In addition, Estimated sales returns
(500,000) merchandise equaling 15% of sales will be exchanged (10% * 5,000,000) for
merchandise of equal or greater value. Ans. Net sales 4,500,000 2.Belgica Co. allowed
customers to return goods within 90days of purchase. The entity estimated that 5% of
sales will be returned within the 90-period . During the month, the entity had sales of ₱
2,000,000 of returns sales made in prior months of ₱ 50,000.
Q: What amount should be recorded as net sales revenue for new sales made during
the month? Sales for the month 2,000,000 Estimated sales returns (5% * 2,000,00)
(100,000) Ans. Net sales revenue 1,900,000
3.On July 1, 2016, Loveluck Co., a manufacturer of office furniture, supplied goods to
Kaye Co. for ₱ 1,200,000 on condition that this amount is paid in full on July 1, 2017.
Kaye had earlier rejected an alternative offer from Loveluck whereby it could have
bought the same goods by paying cash of ₱ 1,080,000 on July 1, 2016.
Q: What amount should be recognized as sales revenue on July 1, 2016? Sales price
1,200,000 Cash price 1,080,000 Ans. Implied interest income 120,000
DIFFICULT: VALIX 1.John Co. used the perpetual system. The following information
has been extracted from the records about one product:
Jan.
UNITS
UNIT COST
TOTAL COST
Beginning balance
8,000
70.00
560,000
Purchases
3,000
70.50
211,500
Feb.
Sale
10,000
Mar.
Purchase
11,000
73.50
808,500
Mar.
Purchase return
800
73.50
58,800
Apr.
10
Sale
7,000
Apr.
30
Sale return
300
Q: If the FIFO cost flow method is used, what is the cost of the inventory on April 30?
Ans. From March 5 purchase (4,500 units * 73.50) 330,750 2. Mildred Co. is a
wholesaler of office supplies. The FIFO periodic inventory is used. The entity reported
the following activity for inventory of calculators during the month of August: UNITS
COST
August 1
Inventory
20,000
36.00
Purchase
30,000
37.20
12
Sale
36,000
21
Purchase
48,000
22
Sale
38,000
29
Purchase
16,000
38.00
38.60
Q: What is the ending inventory on August 31? Ans. Beginning inventory Purchase
(30,000+48,000+16,000) Total units available Sales (36,000+38,000) Ending inventory
in units From August 21 purchase (24,000*38.00) From August 29 purchase
(16,000*38.60) Total cost of inventory, August 31
20,000 94,000 114,000 (74,000) 40,000 912,000 617,600 1,529,600
3.Mark Co. provided the following inventory card during February: PURCHASE PRICE
UNITS Jan.
10
100
20,000
31 Feb.
UNITS BALANCE USED UNITS 20,000 10,000
110
30,000
9 Returns from factory (Jan. 10 lot)
10,000 40,000
(1,000)
41,000
28
11,000
30,000
Q:Using the weighted average method, what is the cost of inventory on February 28?
UNITS Jan. Feb.
10 8
UNIT COST
20,000 100 30,000 110 50,000 Weighted average unit cost (5,300,000/50,000) Cost of
inventory (30,000*106)
TOTAL COST 2,000,000 3,300,000 5,300,000 106 3,180,000
Peter Neil Madjus AUDIT OF INVENTORIES EASY 1. Stone Company had the
following transactions during December 2017:
Answer: D Solution:
Inventory shipped on consignment to Beta Company Freight paid by Stone Inventory

received on consignment From Alpha Company Freight paid by Alpha
1,800,000 90,000 1,200,000 50,000
Inventory shipped on consignment to Beta Freight paid by Stone Total cost of

consigned inv.
1,800,000 90,000 1,890,000
No sales of consigned goods were made in December 2017. What amount should be
included in inventory on Dec 31, 2017? a. 1,200,000 c. 1,800,000 b. 1,250,000 d.
1,890,000 Peter Neil B. Madjus Source: Conrado & Christian Valix 2. Hero Company
reported inventory on December 31, Answer: D 2016 at P6,000,000 based on a
physical count of goods priced at cost and before any necessary year-end Solution:
adjustments relating to the following: Physical count  Included in the physical count
were goods billed to Goods shipped FOB shipping point on December 30, 2016 a
customer FOB shipping point on December 30, 2016. These goods had a cost of
P125,000 and were to Hero and received January 4, 2017 picked by the carrier on
January 7, 2017. Inventory, Dec. 31, 2016  Goods shipped FOB shipping point on
December 28, 2016, from a vendor to Hero were received and recorded on January 4,
2017. The invoice cost was P300,000. What amount should be reported as inventory on
December 31, 2016? a. 5,875,000 c. 6,175,000 b. 6,000,000 d. 6,300,000 Peter Neil B.
Madjus Source: Conrado & Christian Valix 3. Leila Company conducted a physical
count on December Answer: D
6,000,000
300,000 6,300,000
31, 2016 which revealed total cost of P3,600,000. However, the following items were
excluded from the count: Goods sold to a customer are being held for the customer to
call for at the customer’s convenience 200,000 A packing case containing a product
standing in the shipping room when the physical count was taken was not included in
the inventory because it was marked “hold for shipping instructions” Goods in process
held by an outside processor for further processing
80,000
Solution: Inventory per physical count Inventory marked “hold for shipping instructions”
Goods in process inventory Goods shipped FOB Seller Correct inventory
3,600,000 80,000 300,000 50,000 4,030,000
The term FOB seller is the same as FOB shipping point.
300,000
Goods shipped by a vendor FOB Seller on Dec. 28, 2016 and received by Leila
Company on January 10, 2017.
50,000
What is the correct inventory on December 31, 2016? a. 4,180,000 c. 3,980,000 b.

4,230,000 d. 4,030,000 Peter Neil B. Madjus Source: Conrado & Christian Valix
AVERAGE 1. The following information was provided by the Answers: bookkeeper of

COW, INC.: 1. A 1. Sales for the month of June totaled 286,000 units. 2. C 2. The
following purchases were made in June: Date Quantity Unit Cost Solutions: June 4
50,000 P 13.00 1. Inventory quantity, June 1 8 62,500 12.50 Add: Units purchased 11
75,000 12.00 during June 24 70,000 12.40 Units Available for sale Less: Units sold
during June 3. There were 108,500 units on hand on June 1 with a total Inventory
quantity, June 30 cost of P1,450,000. Cow, Inc. uses a periodic FIFO costing system.
The company’s gross profit for June was P2,058,750. 1. How many units were on hand
on June 30?
108,500 257,500 366,000 286,000 80,000
a. 80,000 c. 28,500 b. 177,500 d. 149,000 2. What is the FIFO cost of the company’s
inventory 2.FIFO cost of June 30 inventory: on June 30? From Quantity Unit Cost a.
P1,025,000 c. P988,000 Amount b. P1,016,000 d. P1,069,124 6/24 purchase 70,000
P12.40 P868,000 6/11 purchase 10,000 12.00 120,000 Peter Neil B. Madjus 80,000
Source: Gerardo S. Roque P988,000 2. Mildred Company is a wholesaler of office
supplies. The Answer: D FIFO periodic inventory is used. The entity reported the
following activity for inventory of calculators during the Solution: month of August: Units
Cost Beginning inventory 20,000 Aug. 1 Inventory 20,000 36.00 Purchases 7 Purchase
30,000 37.20 (30,000 + 48,000 + 16,000) 94,000 12 Sale 36,000 Total units available
114,000 21 Purchase 48,000 38.00 Sales (36,000 + 38,000) ( 74,000) 22 Sale 38,000
Ending inventory in units 40,000 29 Purchase 16,000 38.60 From Aug. 21 purchase
What is the ending inventory on August 31? (24,000 x 38.00) 912,000 a. 1,500,800 c.
1,522,880 From Aug. 29 purchase b. 1,501,600 d. 1,529,600 (16,000 x 38.60) 617,600
Total cost of inv., Aug. 31 1,529,600 Peter Neil B. Madjus Source: Conrado & Christian
Valix 3. Monkey Co.’s annual net income for the period 2012 – Answer: C 2016 is as
follows: Solution: Year Net income (loss) 2012 2013 2014 2012 P150,000 Unadjusted
2013 340,000 net income 2014 645,000 (loss) P150,000 P350,000 2015 (100,000)
P645,000 2016 250,000 A review of the company’s records reveals the following 2012
end inv. inventory errors: overstatement (3,000) 3,000 2012 P3,000 overstatement, end
of year 2013 6,000 understatement, end of year 2013 end inv. 2015 4,500
understatement, end of year Understatement 6,000 2016 11,000 understatement, end o
year (6,000) Adjusted net 1. What is the adjusted net income in 2014? Income
P147,000 P349,000 a. P651,000 c. P639,000 P639,000 b. P648,000 d. P645,000
Peter Neil B. Madjus Source: Gerardo S. Roque DIFFICULT 1. SHARK, INC. was
organized on January 1, 2015. On December 31, 2016 the company lost most of its
inventory in a warehouse fire just before the year-end count of inventory was to take
place. The company’s records disclosed the following data: 2015 2106 Inventory,
January 1 P 0 P204,000 Purchases 860,000 692,000 Purchase returns and allowances
46,120 64,600 Sales 788,000 836,000 Sales returns and allowances 16,000 20,000
Answers: 1. A 2. A Solutions:
1.Gross profit rate in 2016 Net sales (P788,000 – P16,000) P772,000 Cost of goods
sold: Net purchases (P860,000 – P46,120) P813,880 Less: Inventory, 12/31/15 204,000
609,880 On January 1, 2016, Shark’s pricing policy was changed so Gross Profit
P162,120 that the gross profit rate would be three percentage higher than the one
earned in 2015. Gross profit rate – 2015 (P162,120 ÷ P772,000) 21% Salvage
undamaged merchandise was marked to sell at Add: Increase in gross profit rate 3%
P24,000 while damaged merchandise marked to sell at Gross profit rate – 2016 24%
P16,000 had an estimated realizable value of P3,600. 2.Inventory fire loss 1. What is
the company’s gross profit rate beginning Inventory, Jan. 1, 2016 P204,000 January 1,
2016? Add: Net Purchase a. 24% c. 17% (P692,000 – 64,600) 627,400 b. 21% d. 20%
Goods available for sale 831,400 2. How much is the inventory fire loss? Less: COGS
a. P189,400 c. P164,920 Net sales b. P183,640 d. P254,000 (836,000 – 20,000)
P816,000 COS ratio (100 – 24%) x76% 620,160 Estimated ending inv. 211,240 Less:
Salvaged undamaged merchandise (24,000 x76%) P18,240 Peter Neil B. Madjus NRV
of damaged merchan. 3,600 21,840 Source: Gerardo S. Roque Inventory fire loss
P189,400 2. CHEETAH CORPORATION is a wholesale distributor of Answer: kitchen
utensils. Unadjusted balances obtained from 1. D Cheetah’s accounting records are as
follows: 2. C Inventory (based on physical count 3. A of goods in Cheetah’s warehouse
at December 31) P432,000 Accounts payable, Dec. 31: Vendor Terms Amount
Zonrox,Inc Net 30 P36,000
Yeba Corp Xak, Inc Wais Co. Velma, Inc Sales
Net 30 Net 30 Net 30 Net 30

28,000 83,000 -
Solutions: P147,000 P2,600,000
The following additional information was also obtained: 1. Goods held on consignment
from Zonrox, Inc., the consignor, valued at P13,000 were included in the physical count
of goods in Cheetah’s warehouse at December 31, and in Accounts Payable balance as
of December 31, 2016. 2. Goods costing P26,400 that were purchased from Wais Co.
and paid for in December were sold in the last week of the current year. The sale was
properly recorded at P58,000 in December. Because the goods were in the shipping
area of Cheetah’s warehouse to be picked up by the customer they were included in the
physical count at December 31
inventory Unadjusted balances P2,600,000 Item No. 1 2 3 4 Adjusted Balances

P2,600,000
3. Retailers were holding goods costing P25,000 (retail price is P35,700) shipped by
Cheetah under consignment term 4. Goods were in transit from Velma, Inc. to Cheetah
on December 31. The cost of these goods was P23,500 and they were shipped FOB
shipping point on December 28 Based on the preceding information, compute the
adjusted balances of the following 1. Inventory a. P417,600 b. P416,100 2. Accounts
Payable a. P134,000 b. P136,500 3. Sales a. P2,600,000 b. P2,635,700
c. P467,500 d. P441,100 c. P157,500 d. P170,500 c. P2,564,300 d. P2,625,000
Peter Neil B. Madjus Source: Gerardo S. Roque 3. In conducting your audit of

Mangatarem Corporation, Answers: a company engaged in import and wholesale
business, for 1. D the fiscal year ended June 30, 2010 instead of at June 30, 2. C 2010.
3. D
Accounts Payable
P432,000 (13,000) (26,400) 25,000 23,500
Sales P147,000
(13,000)
23,500
P441,100
P157,500
You obtained the following information from the company’s general ledger. Sales for
eleven months ended 5/31/10 P1,344,000 Sales for the fiscal year ended 6/30/10
1,536,000 Purchases for eleven months ended 5/31/2010 (before audit adjustments)
1,080,000 Purchases for the fiscal year ended 6/30/10 1,280,000 Inventory, July 1,
2009 140,000 Physical inventory, 5/31/10 220,000 Your audit disclosed the following
additional information. 1. Shipments costing P12,000 were received in May and
included in the physical inventory but recorded as June purchases. 2. Deposit of P4,000
made with vendor and charged to purchases in April 2010. Product was shipped in July
2010. 3. A shipment in June was damaged through the carelessness of the receiving
department. This shipment was later sold in June at its cost of P16,000. 1. The gross
profit ratio for eleven months ended May 31, 2010 is a. 20% c. 30% b. 35% d. 25% 2.
The cost of goods sold during the month of June, 2010 using the gross profit ratio
method is a. P132,000 c.P148,000 b. P144,000 d.P160,000 3. The June 30, 2010
inventory using the gross profit method is a. P264,000 c. P268,000 b. P340,000
d.P260,000
Solutions: 1. Sales for 11 months Ended 5/31/10 P1,344,000 Less cost of sales for 11
months ended 5/31/10: P140,000 Inventory, July 1, 2009 Add adjusted purchases:
Unadjusted P1,080,000 Item no. 1 12,000 Item no. 2 (4,000) 1,088,000 Good available
for sale P1,288,000 Less inv.,5/31/10 220,000 1,008,000 Gross profit 336,000 Divide by
sales for 11 mos. Ended 5/31/10 1,344,000 Gross profit rate for 11 mos. Ended 5/31/10
25% 2. Sales for the fiscal year ended June 30, 2010 P1,536,000 Less sales for 11
mos. ended May 31, 2010 1,344,000 Sales for June, 2010 192,000 Less sales without
profit 16,000 Sales with profit 176,000 Multiply by cost ratio (100% - 25%) 75% Cost of
sales with profit 132,000 Add cost of sales without profit 16,000 Total COS for June,
2010 P 148,000 3. Inventory, 7/1/09 P 140,000 Add adjusted purchases: Unadjusted
P1,280,000 Item no. 2 (4,000) 1,276,000 TGAS 1,416,000 Less cost of sales:
Sales w/out profit 16,000 Sales with profit [(P1,536,000 -P16,000) Peter Neil B. Madjus
× 75%] 1,140,000 1,156,000 Source: Reynaldo R. Ocampo Inventory, 6/30/10 P
260,000
Audit of Inventories Chastyn V. Ramos Questions Easy: 1. The following information

was provided by the book keeper of COW, INC.: a. Sales for the month of June totalled
286,000 units b. The following purchases were made on june: Date Quantity Unit cost
June 4 50,000 13 8 62,500 12.50 11 75,000 12 24 70,000 12.40 c. There were 108,500
units on hand on June 1 with a total cost of 1,450,000. Cow Inc. uses a periodic FIFO
costing system. The company’s gross profit for the month of June was 2,058,750. How
many units were on hand on June 30? Source: Auditing Problems (Gerardo S. Roque)
2. What is the FIFO cost of the company’s inventory on June 30? Source: Auditing
Problems (Gerardo S. Roque) 3. The 286,000 units sold in June had a unit selling price
of? Source: Auditing Problems (Gerardo S. Roque)
Moderate: 1. The following information was taken from the audited financial statements
of HORSE CO.:
Solutions
Inventory, June 1 Units purchased during June Units available for sale Units sold during
June Inventory, June 30
108,500 257,500 366,000 286,000 80,000
Date 06/24 06/11
Quantity Unit cost Amount 70,000 12.40 868,000 10,000 12 120,000 80,000 988,000
Gross Profit 2,058,750 COGS 3,661,250 Sales 5,720,000 Divide by units sold 286,000
Sales price per unit 20
Inventory turnover= COGS/ Ave. Inventory 2015 turnover= 4,246,000
732,400 Inventories: 12/31/16 12/31/15 12/31/14 2016 Sales 10,832,000 COGS

4,482,000 Net Profit 952,800
791,000 744,000 720,800
= 5.80
2015 10,053,400 4,246,000 734,800
Based on the preceeding information, compute for: 2015 inventory turnover Source:
Auditing Problems (Gerardo S. Roque) 2. 2015 average days to sell inventory Source:
Auditing Problems (Gerardo S. Roque) 3. 2016 average days to sell inventory Source:
Auditing Problems (Gerardo S. Roque)
2015 Ave days to sell inventory = 365 days / 5.80 = 62.9 days 2016 Ave days to sell
inventory = 365 days / (4,482,000 / 767,500) = 365 days / 5.84 = 62.5 days
Difficult: 1. Giaval, INC. sells electric stoves. It uses the perpetual inventory system and
allocates cost to inventory on a FIFO basis. The company’s Sales reporting date is
December 31. At December 1, 2016, inventory on COGS hand consisted of 350 stoves
at Gross Profit P820 each and 43 stoves at P850 each. During the month ended
December 31, 2016, the ff inventory transactions occurred (all purchases and sales
transactions are on credit): 2016 Dec. 1 – sold 300 stoves for 1,200 each 3 – Five
stoves were returned by customers. They had originally cost 820 each and were sold at
545,100 (367,230) 177,870
1200 each. 9 – Purchased 55 stoves at 910 each 10 – Purchased 76 stoves at 960

each 15 – Sold 86 stoves for 1350 each 17 – returned one damaged stove to the
supplier. This stove had been purchased on December 9. 22- sold 60 stoves for 1250
each 26 – purchased 72 stoves at 980 each What is Giaval’s Profit in December 2016?
Source: Auditing Problems (Gerardo S. Roque) 2. If net realizable value of Giaval’s
inventory on December 31, 2016, falls to 920, the inventory value should be reduced
by? Source: Auditing Problems (Gerardo S. Roque) 3. The following audited balances
pertain to OWL COMPANY. Accounts Payable: 1/1/16 12/31/16
286,924 737,824
Inventory Balance: 1/1/16 12/31/16
815,386 488,874
COGS – 2016
1,859,082
How much was paid by Owl Company to its suppliers in 2016? Source: Auditing
Problems (Gerardo S. Roque)
Cost of inv, 12/31/16 NRV ( 920 x 154 ) Decline in Value
COGS – 2016 Inv, 12/31/16 GAS Inv, 1/1/16 Purchases A/P, 1/1/16 Total A/P, 12/31/16
Amount paid to suppliers
148,980 141,680 7,300
1,859,082 488,874 2,347,956 (815,386) 1,532,570 286,924 1,819,494 (737,824)

1,081,670
Kimberly Leduna PROBLEMS EASY 1. Terry Company had the following transactions
during December 2016: Inventory shipped on consignment to Irene Company 1,800,000
Freight paid by Terry 90,000 Inventory received on consignment from Suzette Company
1,200,000 Freight paid by Suzette 50,000
SOLUTIONS EASY Inventory shipped on consignment to Irene 1,800,000 Freight paid

by Terry 90,000 Total cost of consigned inventory 1,890,000
What amount should be included in inventory on December 31,2016? 2. Venice

Company included the following inventory at year end: Merchandise out of consignment
at sale price, Including 40% mark up on sales 1,400,000 Goods purchased in transit,
shipped FOB shipping point 1,200,000 Goods held on consignment by Venice n
900,000 At what amount should the inventory be reduced?
Mark up on goods out on consignment ( 1,400,000 x 40% ) 560,000 Goods held in

consignment 900,000 Total Reduction 1,460,000
3. Seafood Company commenced operations during the year as large importer and
exporter of seafood. The imports were all from one country overseas. The entity
reported the following data: Purchases during the year 12,000,000 Shipping costs from
overseas 1,500,000 Shipping costs to export customers 1,000,000 Inventory at year-
end 3,000,000 What amount of shipping costs should be included in the year- end
inventory valuation? MODERATE 1. Bakun Company began operations late in 2015.
For the first quarter ended March 31,2016, the entity provided the following information:
Total merchandise purchased Through March 15,2016
Percent of inventory at year- end ( 3,000,000 / 12,000,000 purchases ) 25%

Inventoriable shipping costs from overseas ( 25% x 1,500,000 ) 375,000
MODERATE Purchases through March 15,2016 ( 4,900,000/ 98%) Inventory- 1/1/2016,

at cost (1,500,000/150% ) Total Gross amount to be paid
5,000,000 1,000,000 6,000,000
recorded at net
4,900,000
Merchandise inventory on January 1,2016, at selling price
1,500,000
All merchandise was acquired on credit and no payments have been made on accounts
payable since the inception of the entity. All merchandise is marked to sell at 50%
above invoice cost before time discounts of 2/10, n/30. No sales were made in 2016.
What amount of cash is required to eliminate the current balance in accounts payable?
2. Acne Company reported accounts payable of P850,000 on December 31,2016 before

necessary year- end adjustments related to the following information:  On December
31,2016, Acne has a P50,000 debit balance in accounts payable resulting from a
payment to a supplier for goods to be manufactured to Acne’s specifications.  Goods
shipped FOB destination on December 20,2016 were received and recorded by Acne
on January 2,2017. The invoice cost was P45,000. On December 31,2016, what
amount should be reported as accounts payable? 3. Marsh Company had 150,000 units
of product A on hand at January 1, costing P21 each. Purchases of product A during the
month of January were as follows: Units unit cost January 10 200,000 22 18 250,000 23
28 100,000 24 A physical count on January 31 shows 250,000 units of product A on
hand. What is the cost of the inventory on January 31, under the FIFO method?
Adjusted accounts payable ( 850,000 + 50,000)
January 18 28 Total FIFO cost
Units Unit cost 150,000 23 100,000 24 250,000
900,000
Total cost 3,450,000 2,400,000 5,850,000
DIFFICULT Lagoon Company accumulated the following data for the current year.
DIFFICULT
Raw materials- beginning inventory 90,000 units@ P7.00 Purchases 75,000 units @

P8.00 Purchases 120,000 units@ P8.50 The entity transferred 195,000 units of raw
materials to work in process during the year.
Work in process- beginning inventory 50,000 units@ P14.00 Direct labor 3,100,000

Manufacturing Overhead 2,950,000 Work in process – ending inventory
48,000 units@ P15.00 The entity used the FIFO method for valuing inventory. 1. What
is the cost of raw materials used?
Purchases ( 75,000 x 8.00 ) Purchases ( 120,000 x 8.50 ) Total purchases
600,000 1,020,000 1,620,000
Beginning raw materials (90,000 x 7 ) Purchases Raw materials available for use
Ending raw materials ( 90,000 x 8.50 ) Raw materials used
630,000 1,620,000 2,250,000 ( 765,000) 1,485,000
Beginning raw materials of 90,000 units plus purchases of 75,000 and 120,000 minus
195,000 units transferred equals 90,000 ending raw materials. 2. What is the total
manufacturing cost?
Raw materials used Direct labor Manufacturing overhead Total manufacturing cost
3.
Total manufacturing cost Beginning work in process ( 50,000 x 14 )
What is the cost of goods manufactured for the current year?
1,485,000 3,100,000 2,950,000 7, 535,000 7,535,000 700,000
Total work in process Ending work in process ( 48,000 x 15 ) Cost of goods

manufactured
8,235,000 (720,000) 7,515,000

FINANCIAL ACCOUNTING MCQ - Problems Statement of Cost of Goods Sold Ending
inventory 1. Fairy Company provided the following information:
2013 Sales 7,500,000 Beginning inventory 1,260,000 Purchases 6,450,000 Freight in

350,000 Purchase discounts 90,000 Purchase returns 120,000 Purchase allowances
20,000 Ending inventory 2,355,000 What is the inventory on December 31, 2014? A.
2,025,000 C. 2,505,000 B. 2,370,000 D. 3,285,000
2014 4,500,000 3,180,000 220,000 45,000 40,000 15,000 ? FA © 2014
Cost of goods available for sale 2. Tonette Company provided the following information
for the current year: Net sales 3,600,000 Freight in 90,000 Purchase discounts 50,000
Ending inventory 240,000 The gross margin is 40% of sales. What is the cost of goods
available for sale? " A. 1,680,000 C. 2,400,000 B. 1,920,000 D. 2,440,000 FA © 2014
Gross profit rate 3. Illusive Company provided the following data for the current year:
Sales Sales return Inventory, January 1 Purchases Freight in Purchase return Purchase
allowance Purchase discount Inventory, December 31 MCQ - Problems
6,200,000 200,000 1,000,000 5,500,000 250,000 100,000 30,000 20,000 2,100,000

Page 32
Inventory – Cost Flow & Valuation What is the gross profit rate on cost for the current
year? A. 25 percent C. 75 percent B. 33 1/3 percent D. 66 2/3 percent
FA © 2014
Reconstruction of Accounts Accounts receivable 4. Steven Company began operations

in 2014. For the year ended December 31,2014, the entity provided the following
information: Total merchandise purchases for the year 7,000,000 Merchandise
inventory on December 31 1,400,000 Collection from customers 4,000,000 All
merchandise was marked to sell at 40% above cost. All sales are on a credit basis and
all receivables are collectible. What is the balance of accounts receivable on December
31,2014? A. 1,000,000 C. 5,000,000 B. 3,840,000 D. 5,800,000 FA © 2014 5.
Greenhorn Company provided the following information for the current year: Accounts
receivable, January 1 800,000 Accounts receivable collected 2,600,000 Cash sales
500,000 Inventory, January 1 1,200,000 Inventory, December 31 1,100,000 Purchases
2,000,000 Gross profit on sales 900,000 What is the balance of accounts receivable on
December 31? A. 700,000 C. 1,300,000 B. 1,200,000 D. 1,700,000 FA © 2014
Inventory 6. Hectic Company provided the following data for the current year: Accounts
receivable, January 1 Accounts receivable, December 31 Turnover of accounts
receivable Inventory, January 1 Purchases Gross profit rate ' Hint: Net sales = Average
accounts receivable x turnover MCQ - Problems
1,100,000 1,300,000 5 to 1 1,800,000 4,500,000 40%

Page 33
FINANCIAL ACCOUNTING What is the estimated inventory on December 31? A.

300,000 C. 3,900,000 B. 2,700,000 D. 6,000,000 7.
Quench Company provided the following information: Cash sales Cash collected on
accounts receivable Accounts receivable, January 1 Accounts receivable, December 31
Bad debts written off Purchases Inventory, December 31 Gross profit on sales What is
the inventory on January 1? A. 640,000 C. 1,350,000 B. 805,000 D. 1,485,000
Gross Margin 8. Vigor Company provided the following information for the current year:
Accounts receivable, January 1 Accounts receivable, December 31 Accounts receivable
turnover Inventory, January 1 Inventory, December 31 Inventory turnover Hint: Cost of
sales = Average inventory x turnover What is the gross margin for the current year? A.
3,000,000 C. 4,600,000 B. 3,400,000 D. 7,600.000
FA © 2014 640,000 4,400,000 1,100,000 950,000 60,000 3,500,000 840,000 30% FA ©

2014
900,000 1,000,000 8 to 1 . 1,100,000 1,200,000 4 to 1
FA © 2014
Purchases 9. Brilliant Company purchased motorcycles from various countries for

export to other countries. The entity has incurred the following costs during the current
year: Cost of purchases based on vendors' invoices 5,000,000 Trade discounts on
purchases already deducted from vendors' invoices 500,000 Import duties 400,000
Freight and insurance on purchases 1,000,000 Other handling costs relating to imports
100,000 Salaries of accounting department 600,000 MCQ - Problems
Page 34
Inventory – Cost Flow & Valuation Brokerage commission paid to agents for arranging
imports Sales commission paid to sales agents After-sales warranty costs What is the
total cost of the purchases? A. 5,700,000 C. 6,500,000 B. 6,100,000 D. 6,700,000
200,000 300,000 250,000 FA © 2014
Accounts payable 10. Wine Company recorded purchases at net amount. On December
10, the entity purchased merchandise on account, P4,000,000, terms 2/10, n/30. The
entity returned P300,000 of the December 10 purchase and received credit on account.
The account had not been paid on December 31. At what amount should the account
payable be adjusted on December 31? A. 0 C. 80,000 B. 74,000 D. 86,000 P1 © 2014
11. Kindness Company regularly buys sweaters and is allowed a trade discount of 20%
and 10%. The entity made a purchase on March 20 and received an invoice with a list
price of P900,000, a freight charge of P50,000, and payment terms of net 30 days. The
entity should record the purchase at what amount? A. 630,000 C. 680,000 B. 648,000
D. 698,000 FA © 2014 12. Quest Company reported accounts payable on December
31, 2014 at P2,000,000 before considering the following transactions:  
Goods shipped to Quest Company, FOB shipping point on December 20, 2014, from a
vendor were lost in transit. The invoice price was P100,000. On January 5, 2015, Quest
Company filed at P100,000 claim against the common carrier. On December 27, 2014,
a vendor authorized Quest Company to return, for full credit, goods shipped and billed
at P50,000 on December 2, 2014. The returned goods were shipped by Quest
Company on December 27, 2014. A P50,000 credit memo was received and recorded
by Quest Company on January 6, 2015.
On December 31, 2014, what amount should be reported as accounts payable? A.

2,050,000 C. 2,250,000 B. 2,150,000 D. 2,300,000 FA © 2014
MCQ - Problems
Page 35
FINANCIAL ACCOUNTING 13. Black Company reported accounts payable on

December 31,2014 at P4,500,000 before any necessary year-end adjustments relating
to the following transactions: • On December 27,2014, Black wrote and recorded checks
to creditors totaling P2,000,000 causing an overdraft of P500,000 in Black's bank
account on December 31, 2014. The checks were mailed on January 10,2015. • On
December 28, 2014, Black purchased and received goods for P750,000, terms 2/10,
n/30. Black records purchases and accounts payable at net amount. The invoice was
recorded and paid January 3,2015. • Goods shipped F.O.B. destination on December
20,2014 from a vendor to Black were received January 2,2015. The invoice cost was
P325,000. On December 31, 2014, what amount should be reported as accounts
payable? A. 7,235,000 C. 7,553,500 B. 7,250,000 D. 7,575,000 P1 © 2014 14. Kew
Company reported accounts payable on December 31,2014 at P2,200,000 before
considering the following data: • Goods shipped to Kew F.O.B. shipping point on
December 22, 2014, were lost in transit. The invoice cost of P40,000 was not recorded
by Kew. On January 7,2015, Kew filed a P40,000 claim against the common carrier. •
On December 27, 2014, a vendor authorized Kew to return, for full credit, goods
shipped and billed at P70,000 on December 3,2014. The returned goods were shipped
by Kew on December 28,2014. A P70,000 credit memo was received and recorded by
Kew on January 5, 2015. • On December 31,2014, Kew has a P500,000 debit balance
in accounts payable to Ross, a supplier, resulting from a P500,000 advance payment
for goods to be manufactured. What amount should be reported as accounts payable on
December 31,2014? A. 2,170,000 C. 2,680,000 B. 2,670,000 D. 2,730,000 P1 © 2014
15. Bakun Company began operations late in 2013. For the first quarter ended March
31,2014, the entity provided the following information: Total merchandise purchased
through March 15, 2014 recorded at net 4,900,000 Merchandise inventory on December
31, 2013, at selling price 1,500,000 All merchandise was acquired on credit and no
payments have been made on accounts payable since the inception of the entity. All
merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10,
n/30. No sales were made in 2014. What amount of cash is required to eliminate the
current balance in accounts payable? A. 5,750,000 C. 6,000,000 B. 5,900,000 D.
6,400,000 P1 © 2014 MCQ - Problems
Page 36
Inventory – Cost Flow & Valuation 16. Black Company reported accounts payable on
December 31, 2014 at P900.000 before any necessary year-end adjustments relating to
the following transactions:   
On December 27, 2014, Black Company wrote and recorded checks to creditors totaling
P400,000 causing an overdraft of P100,000 in Black Company's bank account on
December 31, 2014. The checks were mailed out on January 10, 2015. On December
28, 2014, Black Company purchased and received goods for P150,000 terms 2 /10, n
/30. Black Company records purchases and accounts payable at net amount. The
invoice was recorded and paid January 3, 2015. Goods shipped FOB shipping point,
5/10, n/30 on December 20, 2014 from a vendor to Black Company were received
January 2, 2015. The invoice cost was P200,000.
On December 31, 2014, what amount should be reported as accounts payable? A.

1,447,000 C. 1,637,000 B. 1,450,000 D. 1,650,000 FA © 2014 Payment for purchases
17. On June 1,2014, Pitt Company sold merchandise with a list price of P5,000,000 to
Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/10,
n/30 and the sale was made FOB shipping point. Pitt prepaid P200,000 of delivery costs
for Burr as an accommodation. On June 11, 2014, what amount was received by Pitt
from Burr as remittance in full? A. 2,744,000 C. 2,944,000 B. 2,940,000 D. 3,140,000
P1 © 2014 18. Cognac Company used the perpetual inventory and gross method of
recording purchases. On December 1, the entity purchased P1,500,000 of inventory,
terms 2/10, n/30. On December 5, the entity returned goods that cost P150,000. On
December 11, the entity paid the supplier. On December 11, what account should be
credited? FA © 2014 A. Inventory for P27,000 C. Purchase discount for P27,000 B.
Inventory for P30,000 D. Purchase discount for P30,000 Net method vs. gross method
19. Rabb Company records purchases at gross amount but wishes to change to
recording purchases net of purchase discounts. Discount available on purchases for the
current year totaled P100,000. Of this amount, P10,000 is still available in the accounts
payable balance. The balances in the accounts as of and for the year ended December
31, before conversion are: MCQ - Problems
Page 37
FINANCIAL ACCOUNTING Purchases 5,000,000 Purchase discounts taken 40,000

Accounts payable 1,500,000 What is the balance of accounts payable on December 31
after the conversion? A. 1,410,000 C. 1,460,000 B. 1,440,000 D. 1,490,000 P1 © 2014
20. Duke Company specializes in the sale of IBM compatibles and software packages
and had the following transactions: Purchases of IBM compatibles 1,700,000 Purchases
of commercial software packages 1,200,000 Returns and allowances 50,000 Purchase
discounts taken 17,000 Terms on all purchases were 2/10, n/30. All returns and
allowances took place within 5 days of purchase and prior to any payment. What was
the amount of discount lost? A. 17,000 C. 41,000 B. 40,000 D. 57,000 FA © 2014 21.
On August 1 of the current year, Stella Company recorded purchases of inventory of
P800,000 and P 1,000,000 under credit terms of 2/15, net 30. The payment due on the
P800,000 purchase was remitted on August 16. The payment due on the P1,000,000
purchase was remitted on August 31. Under the net method and the gross method,
these purchases should be included at what respective amounts in the determination of
cost of goods available for sale? FA © 2014 A. B. C. D. Net method 1,784,000
1,764,000 1,764,000 1,800,000 Gross method 1,764,000 1,800,000 1,784,000
1,764,000 Questions 22 & 23 are based on the following information. FA © 2014 Wine
Company recorded purchases at net amount. On December 10, the entity purchased
merchandise on account, P4,000,000, terms 2/10, n/30. The entity returned P300,000 of
the December 10 purchase and received credit on account. The account had not been
paid on December 31. 22. What amount should be recorded as purchase return? A.
270,000 C. 300,000 B. 294,000 D. 306,000
MCQ - Problems
Page 38
Inventory – Cost Flow & Valuation 23. By how much should the account payable be
adjusted on December 31? A. 0 C. 80,000 B. 74,000 D. 86,000 Inventoriable cost 24.
Dean Sportswear regularly buys sweaters from Mill Company and is allowed trade
discounts of 20% and 10% from the list price. Dean made a purchase during the year,
and received an invoice with a list price of P600,000, a freight charge of P15,000 and
payment terms of 2/10, n/30. What is the cost of the purchase? A. 432,000 C. 438,360
B. 435,000 D. 447,000 P1 © 2014 25. On December 26, 2014, Branigan Company
purchased goods costing PI,000,000. The terms were FOB shipping point. The goods
were received on December 28,2014. Costs incurred by the entity in connection with the
purchase and delivery of the goods were normal freight charge P30,000, handling cost
P20,000, insurance on shipment P5,000 and abnormal freight charge for express
shipping P12,000. What is the total cost of the inventory? A. 1,030,000 C. 1,055,000 B.
1,050,000 D. 1,067,000 FA © 2014 26. Eagle Company incurred the following costs in
relation to a certain product: Direct materials and labor Variable production overhead
Factory administrative costs Fixed production costs What is the correct measurement of
the product? A. 195,000 C. 225,000 B. 205,000 D. 240,000 27. Parrot Company
provided the following inventory data: Materials Production labor cost Production
overhead General administration cost Marketing cost What is the value of the
completed inventory? A. 630,000 C. 850,000 B. 750,000 D. 900,000 MCQ - Problems
180,000 25,000 15,000 20,000 FA © 2014 300,000 330,000 120,000 100,000 50,000
FA © 2014 Page 39
FINANCIAL ACCOUNTING 28. On December 28, 2014, Kerr Company purchased
goods costing P500,000. The terms were FOB destination. The costs incurred in
connection with the sale and delivery of the goods were: Packaging for shipment 10,000
Shipping 15,000 Special handling charges 25,000 These goods were received on
December 31,2014. On December 31, 2014, what total cost should be included in
inventory? A. 500,000 C. 535,000 B. 520,000 D. 545,000 FA © 2014 29. Stone
Company had the following transactions during December 2014: Inventory shipped on
consignment to Beta Company 1,800,000 Freight paid by Stone 90,000 Inventory
received on consignment from Alpha Company 1,200,000 Freight paid by Alpha 50,000
No sales of consigned goods were made in December 2014. What amount should be
included in inventory on December 31,2014? A. 1,200,000 C. 1,800,000 B. 1,250,000
D. 1,890,000 P1 © 2014 30. Fenn Company provided the following information for the
current year: Merchandise purchased for resale Freight in Freight out Purchase returns
Interest on inventory loan What is the inventoriable cost of the purchase? A. 4,030,000
C. 4,130,000 B. 4,080,000 D. 4,280,000
4,000,000 100,000 50,000 20,000 200,000
31. Brilliant Company has incurred the following costs during the current year: Cost of
purchases based on vendors' invoices Trade discounts on purchases already deducted
from vendors' invoices Import duties Freight and insurance on purchases Other
handling costs relating to imports Salaries of accounting department Brokerage
commission paid to agents for arranging imports MCQ - Problems
FA © 2014 5,000,000 500,000 400,000 1,000,000 100,000 600,000 200,000 Page 40
Inventory – Cost Flow & Valuation Sales commission paid to sales agents After-sales
warranty costs What is the total cost of purchases? A. 5,700,000 B. 6,100,000
300,000 250,000 C 6,500,000 D. 6,700,000
FA © 2014
Inventories 32. Tequila Company had at year-end P200,000 office supplies, P1,350,000
raw materials, P2,950,000 goods in process, P3,600,000 finished goods and P300,000
prepaid insurance. What total amount should be reported as inventories in the
statement of financial position at year-end? A. 3,600,000 C. 7,900,000 B. 3,800,000 D.
8,100,000 FA © 2014 33. Corolla Company incurred the following costs: Materials
700,000 Storage costs of finished goods 180,000 Delivery to customers 40,000
Irrecoverable purchase taxes 60,000 At what amount should the inventory be
measured? A. 760,000 C. 940,000 B. 880,000 D. 980,000 FA © 2014 34. Aman
Company provided the following data: Items counted in the bodega Items included in
the count specifically segregated per sale contract Items in receiving department,
returned by customer, in good condition Items ordered and in the receiving department
Items ordered, invoice received but goods not received. Freight is on account of seller.
Items shipped today, invoice mailed, FOB shipping point Items shipped today, invoice
mailed, FOB destination Items currently being used for window display Items on counter
for sale Items in receiving department, refused because of damage Items included in
count, damaged and unsalable Items in the shipping department What is the correct
amount of inventory? A. 5,150,000 C. 5,800,000 B. 5,700,000 D. 6,000,000 MCQ -
Problems
4,000,000 100,000 50,000 400,000 300,000 250,000 150,000 200,000 800,000 180,000
50,000 250,000 P1 © 2014 Page 41
FINANCIAL ACCOUNTING 35. Lunar Company included the following items under
inventory: Materials Advance for materials ordered Goods in process Unexpired
insurance on inventory Advertising catalogs and shipping cartons Finished goods in
factory Finished goods in entity-owned retail store, including 50% profit on cost Finished
goods in hands of consignees including 40% profit on sales Finished goods in transit to
customers, shipped FOB destination at cost Finished goods out on approval, at cost
Unsalable finished goods, at cost Office supplies Materials in transit, shipped FOB
shipping point, excluding freight of P30,000 Goods held on consignment, at sales price,
cost P150,000 What is the correct amount of inventory? A. 5,375,000 C. 5,500,000 B.
5,250,000 D. 5,540,000 36. Ram Company provided the following information at the end
of current year. Finished goods in storeroom, at cost, including overhead of P400,000 or
20%. Finished goods in transit, including freight charge of P20,000, FOB shipping point
Finished goods held by salesmen, at selling price, cost, P100,000 Goods in process, at
cost of materials and direct labor Materials Materials in transit, FOB destination
Defective materials returned to suppliers Shipping supplies Gasoline and oil for testing
finished goods Machine lubricants What is the correct amount of inventory? A.
4,000,000 C. 4,170,000 B. 4,090,000 D. 4,270,000
MCQ - Problems
1,400,000 200,000 650,000 60,000 150,000 2,000,000 750,000 400,000 250,000

100,000 50,000 40,000 330,000 200,000 P1 © 2014
2,000,000 250,000 140,000 720,000 1,000,000 50,000 100,000 20,000 110,000 60,000
P1 © 2014
Page 42
Inventory – Cost Flow & Valuation Adjusted inventory balance 37. Brandy Company
took a physical inventory at the end of the year and determined that P2,600,000 of
goods were on hand. In addition, the entity determined that P200,000 of goods
purchased in transit shipped FOB shipping point were actually received two days after
the physical count and that the entity had P300,000 of goods out on consignment. What
amount should be reported as inventory at year-end? A. 2,600,000 C. 2,900,000 B.
2,800,000 D. 3,100,000 FA © 2014 38. Scotch Company took a physical inventory at
the end of the year and determined that P1,900,000 of goods were on hand. In addition,
the entity determined that P240,000 of goods purchased were in transit shipped FOB
destination. The goods were actually received three days after the inventory count. The
entity sold P100,000 worth of inventory FOB destination. Such inventory is in transit at
year-end. What amount should be reported as inventory at yearend? A. 1,900,000 C.
2,140,000 B. 2,000,000 D. 2,240,000 FA © 2014 39. The audit of Joust Company
revealed a physical inventory on December 31, 2014 with a cost of P4,000,000. The
following items were excluded from the count: * A special machine, fabricated to order
for a customer costing P400,000, was finished and specifically segregated on
December 31, 2014. The customer was billed on that date and the machine excluded
from inventory although it was shipped on January 4, 2015. • Merchandise costing
P50,000 shipped by a vendor FOB seller on December 28, 2014 and received b3?
Joust Company on January 10, 2015. What is the correct inventory on December 31,
2014? A. 4,000,000 C. 4,400,000 B. 4,050,000 D. 4,450,000 FA © 2014 40. Honor
Company reported inventory on December 31, 2014 at P1,500,000 based on a physical
count of goods priced at cost, and before any necessary year-end adjustment relating to
the following:  Included in the physical count were goods billed to a customer FOB
shipping point on December 31, 2014. These goods had a cost of P30,000 and were
picked up by the carrier on January 10,2015.  Goods shipped FOB destination on
December 28, 2014 from a vendor to Honor Company were received on January 4,
2015. The invoice cost was P50,000. MCQ - Problems
Page 43
FINANCIAL ACCOUNTING What amount should be reported as inventory on

December 31, 2014? A. 1,470,000 C. 1,500,000 B. 1,480,000 D. 1,550,000
FA © 2014
41. Empty Company reported inventory on December 31, 2014 at P2,500,000 based on
physical count priced at cost and before any necessary adjustment for the following: 
Merchandise costing P100,000, shipped FOB shipping point from a vendor on
December 30, 2014 was received and recorded on January 5, 2015.  Goods in the
shipping area were excluded from inventory although shipment was not made until
January 4, 2015. The goods billed to the customer FOB shipping point on December 30,
2014, had a cost of P400,000. What amount should be reported as inventory on
December 31,2014? A. 2,500,000 C. 2,900,000 B. 2,600,000 D. 3,000,000 FA © 2014
42. Brandy Company took a physical inventory at the end of the year and determined
that P2,600,000 of goods were on hand. In addition, the entity determined that
P200,000 of goods purchased in transit shipped FOB shipping point were actually
received two days after the inventory count and that the entity had P300,000 of goods
out on consignment. What amount should be reported as inventory at the end of the
year? A. 2,600,000 C. 2,900,000 B. 2,800,000 D. 3,100,000 FA © 2014 43. Hero
Company reported inventory on December 31, 2014 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 30,2014. These goods had a cost of PI 25,000 and were
picked up by the carrier on January 7, 2015. • Goods shipped FOB shipping point on
December 28, 2014, from a vendor to Hero were received on January 4,2015. The
invoice cost was P300,000. What amount should be reported as inventory on December
31, 2014? A. 5,875,000 C. 6,175,000 B. 6,000,000 D. 6,300,000 P1 © 2014 44. The
physical count conducted in the warehouse of Lenient Company on December 31, 2014
revealed total cost of P3,600,000. However, the following items were excluded from the
count: MCQ - Problems
Page 44
Inventory – Cost Flow & Valuation 
Goods sold to a customer, which are being held for the customer to call for at the
customer's convenience with a cost of P200,000.  A packing case containing a product
costing P80,000 was standing in the shipping room when the physical inventory was
taken. It was not included in the inventory because it was marked "hold for shipping
instructions". Goods in process costing P300,000 held by an outside processor for
further processing. What is the correct inventory on December 31, 2014? A. 3,880,000
C. 4,100,000 B. 3,980,000 D. 4,180,000 FA © 2014 45. Reverend Company conducted
a physical count on December 31, 2014 which revealed merchandise with a total cost of
P5,000,000. However, further investigation revealed that the following items were
excluded from the count. * 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. * A packing
case containing a product costing P500,000 was standing in the shipping room when
the physical inventory was taken. It was not included in the inventory because it was
marked "hold for shipping instructions". The investigation revealed that the customer's
order was dated December 28,2014, but that the case was shipped and the customer
billed on January 4, 2015. * A special machine costing P250,000, fabricated to order for
a customer, was finished and specifically segregated at the back part of the shipping
room on December 31,2014. The customer was billed on that date and the machine
was excluded from inventory although it was shipped on January 2, 2015. What is the
correct amount of inventory that should be reported on December 31,2014? A.
5,500,000 C. 5,750,000 B. 5,700,000 D. 5,950,000 P1 © 2014 46. Fair Company
reported inventory on hand on December 31,2014 valued at a cost of P950,000. The
following items were not included in this inventory amount: Item: Purchased goods in
transit, shipped FOB destination, invoice price P30,000 which includes freight charge of
P1,500. Item 2: Goods held on consignment by Fair Company at a sales price of
P28,000, including sales commission of 20% of the sales price. Item 3: Goods sold to
Grace Company, under terms FOB destination, invoiced for P18,500 which includes
P1,000 freight charge to deliver the goods. Goods are in transit. The entity's selling
price is 140%o of cost. Item 4: Purchased goods in transit, terms FOB shipping point,
invoice price P50,000, MCQ - Problems
Page 45
FINANCIAL ACCOUNTING freight cost, P2,500. Goods out on consignment to Manila

Company, sales price P35,000, shipping cost of P2,000. What is the adjusted cost of
the inventory on December 31,2014? A. 1,040,000 C. 1,043,000 B. 1,042,000 D.
1,073,500 P1 © 2014 Item 5:
47. Baritone Company counted and reported the ending inventory on December 31,
2014 at P2,000,000. None of the following items were included when the total amount of
the ending inventory was computed: • P150,000 in goods located in the entity's
warehouse that are on consignment from another entity. • P200,000 in goods that were
sold by the entity and shipped on December 30 and were in transit on December
31,2014. The goods were received by the customer on January 2,2015. Terms were
FOB destination. • P300,000 in goods that were purchased by the entity and shipped on
December 30 and were in transit on December 31, 2014. The goods were received by
the entity on January 2,2015. Terms were FOB shipping point. • P400,000 in goods that
were sold by the entity and shipped on December 30 and were in transit on December
31,2014. The goods were received by the customer on January 2, 2015. Terms were
FOB shipping point. What is the correct amount of inventory on December 31,2014? A.
2,350,000 C. 2,750,000 B. 2,500,000 D. 2,900,000 FA © 2014 48. Sterling Company
reported the 2014 year-end inventory at P7,600,000 before the following adjustments: *
Goods valued at PI,000,000 are on consignment with a customer. These goods are not
included in the year-end inventory. * Goods costing P250,000 were received from a
vendor on January 5,2015. The related invoice was received and recorded on January
12, 2015. The goods were shipped on December 31, 2014, terms FOB shipping point. *
Goods costing P850,000 were shipped on December 31,2014, and were delivered to
the customer on January 2,2015. The terms of the invoice were FOB shipping point.
The goods were included in ending inventory for 2014 even though the sale was
recorded in 2014. * A P350,000 shipment of goods to a customer on December 31,
2014, FOB destination, was not included in the year-end inventory. The goods cost
P260,000 and were delivered to the customer on January 8,2015. The sale was
properly recorded in2015. MCQ - Problems
Page 46
Inventory – Cost Flow & Valuation *
An invoice for goods costing P350,000 was received and recorded as a purchase on
December 31, 2014. The related goods, shipped FOB destination, were received on
January 2, 2015, and thus were not included in the physical inventory. * Goods valued
at P650,000 are on consignment from a vendor. These goods are not included in the
year-end inventory. * A P1,050,000 shipment of goods to a customer on December 30,
2014, terms FOB destination, was recorded as a sale in 2014. The goods, costing
P840,000 and delivered to the customer on January 6,2015, were not included in 2014
ending inventory. What is the correct inventory on December 31,2014? A. 8,100,000 C.
9,450,000 B. 9,100,000 D. 9,950,000 P1 © 2014 49. Joy Company conducted a
physical count on December 31,2014 which revealed inventory with a cost of
P4,410,000. The audit identified that the following items were excluded from this
amount: * Merchandise of P610,000 is held by Joy on consignment. * Merchandise
costing P380,000 was shipped by Joy FOB destination to a customer on December
31,2014. The customer was expected to receive the goods on Janaury 5,2015. *
Merchandise costing P460,000 was shipped by Joy FOB shipping point to a customer
on December 29, 2014. The customer was expected to receive the goods on January 5,
2015. * Merchandise costing P830,000 shipped by a vendor FOB destination on
December 31, 2014 was received by Joy on January 5,2015. * Merchandise costing
P510,000 purchased FOB shipping point was shipped by the supplier on December 31,
2014 and received by Joy on January 5,2015. What is the correct amount of inventory
on December 31,2014? A. 3,800,000 C. 4,920,000 B. 4,690,000 D. 5,300,000 FA ©
2014 50. Mia Company submitted an inventory list on December 31,2014 which showed
a total of P5,000,000. • Excluded from the inventory was merchandise costing P80,000
because it was transferred to the delivery department for packaging on December
28,2014 and for shipping on January 2,2015. • The bill of lading and other import
documents on a merchandise were delivered by the bank and the trust receipt accepted
by the entity on December 26,2014. Taxes and duties have been paid on this shipment
but the broker did not deliver the merchandise until January 7, 2015. Cost of the
shipment totaled P800.000. This shipment was not included in the inventory on
December 31,2014. MCQ - Problems
Page 47
FINANCIAL ACCOUNTING •
A review of the entity's purchase orders showed a commitment to buy P100,000 worth
of merchandise from Myrose Company. This was not included in the inventory because
the goods were received on January 3, 2015. Supplier's invoice for P300,000 worth of
merchandise dated December 28,2014 was received through the mail on December 30,
2014 although the goods arrived only on January 4? 2015. Shipment terms are FOB
shipping point. This item was included in the December 31,2014 inventory by the entity.
• Goods valued at P20,000 were received from Darlyn Company on December 28,2014
for approval by Mia. The inventory team included this merchandise in the list but did not
place any value on it. On January 4,2015, the entity informed the supplier by long
distance telephone of the acceptance of the goods and the supplier's invoice was
received on January 7,2015. • On December 27, 2014, an order for P25,000 worth of
merchandise was placed. This was included in the year-end inventory although it was
received only on January 5,2015. The seller shipped the goods FOB destination. What
is the correct inventory on December 31, 2014? A. 5,055,000 C. 5,830,000 B. 5,555,000
D. 5,855,000 P1 © 2014 51. Leila Company conducted a physical count on December
31,2014 which revealed total cost of P3,600,000. However, the following items were
excluded from the count: • Goods sold to a customer which are being held for the
customer to call for at the customer's convenience with a cost of P200,000. • A packing
case containing a product costing P80,000 was standing in the shipping room when the
physical inventory was taken. It was not included in the inventory because it was
marked "hold for shipping instructions". • Goods in process costing P300,000 held by an
outside processor for further processing. • Goods costing P50,000 shipped by a vendor
FOB seller on December 28,2014 and received by Leila Company on January 10, 2015.
What is the correct inventory on December 31, 2014? A. 3,980,000 C. 4,180,000 B.
4,030,000 D. 4,230,000 P1 © 2014 Inventory adjustments 52. An analysis of the ending
inventory of Lilac Company on December 31,2014 disclosed the inclusion of the
following items: Merchandise in transit purchased on terms: FOB shipping point FOB
destination MCQ - Problems
165,000 100,000 Page 48
Inventory – Cost Flow & Valuation Merchandise out on consignment at sales price
(including markup of 30% on cost) Merchandise sent to customer for approval (cost of
goods, P30,000) Merchandise held on consignment What is the reduction of the
inventory on December 31,2014? A. 190,000 C. 222,000 B. 203,500 D. 355,000
195,000 40,000 35,000 P1 © 2014
Cost of goods sold 53. Brooke Company used a perpetual inventory system. At the end
of 2013, the inventory account was P360,000 and P30,000 of those goods included in
ending inventory were purchased FOB shipping point and did not arrive until 2014.
Purchases in 2014 were P3,000,000. The perpetual inventory records showed an
ending inventory of P420,000 for 2014. A physical count at the end of 2014 showed an
inventory of P3 80,000. Inventory shortages are included in cost of goods sold. What
amount should be reported as cost of goods sold for 2014? A. 2,940,000 C. 3,000,000
B. 2,980,000 D. 3,010,000 FA © 2014 54. Clem Company provided the following for the
current year: Central warehouse Beginning inventory 1,100,000 Purchases 4,800,000
Freight in 100,000 Transportation to consignees 50,000 Freight out 300,000 Ending
inventory 1,450,000 What is the cost of goods sold for the current year? A. 4,550,000 C.
5,070,000 B. 4,850,000 D. 5,120,000
Held by consignees 120,000 600,000 80,000 200,000 FA © 2014
Consignment sales revenue 55. On October 1, 2014, Grimm Company consigned 40

freezers to Holden Company costing P14,000 each for sale at P20,000 each and paid
PI 6,000 in transportation costs. On December 30, 2014, Holden Company reported the
sale of 10 freezers and remitted P170,000. The remittance was net of the agreed 15%
commission. What amount should be recorded as consignment sales revenue for 2014?
MCQ - Problems
Page 49
FINANCIAL ACCOUNTING A. 154,000 B. 170,000
C. 196,000 D. 200,000
P1 © 2014
Payable for consigned goods 56. On December 1,2014, Alt Department Store received
505 sweaters on consignment from Todd. Todd's cost for the sweaters was P800 each,
and they were priced to sell at PI,000. Alt's commission on consigned goods is 10%>.
On December 31, 2014, 5 sweaters remained. In the December 31,2014 statement of
financial position, what amount should be reported as payable for consigned goods? A.
404,000 C. 454,000 B. 450,000 D. 490,000 P1 © 2014 FIFO method 57. Marsh
Company had 150,000 units of product A on hand at January 1, costing P21 each.
Purchases of product A during the month of January were as follows: Units Unit cost
January 10 200,000 22 18 250,000 23 28 100,000 24 A physical count on January 31
shows 250,000 units of product A on hand. What is the cost of the inventory on January
31 under the FIFO method? A. 5,250,000 C. 5,550,000 B. 5,350,000 D. 5,850,000 P1 ©
2014 58. Mildred Company is a wholesaler of office supplies. The FIFO periodic
inventory is used. The activity for inventory of calculators during August is as follows:
August 1 7 12 21 22 29
Inventory Purchase Sale Purchase Sale Purchase
Units 20,000 30,000 36,000 48,000 38,000 16,000
What is the ending inventory on August 31 ? A. 1,500,800 C. 1,522,880 B. 1,501,600 D.

1,529,600 MCQ - Problems
Cost 36.00 37.20 38.00 38.60
P1 © 2014 Page 50
Inventory – Cost Flow & Valuation 59. Jayson Company used the perpetual system.
The following information has been extracted from the records about one product: Units
Unit cost Total cost Jan. 1 Beginning balance 8,000 70.00 560,000 6 Purchase 3,000
70.50 211,500 Feb. 5 Sale 10,000 Mar. 5 Purchase 11,000 73.50 808,500 Mar. 8
Purchase return 800 73.50 58,800 Apr. 10 Sale 7,000 Apr. 30 Sale return 300 If the
FIFO cost flow method is used, what is the cost of the inventory on April 30? A. 315,000
C. 330,750 B. 329,360 D. 433,876 P1 © 2014 60. Hilltop Company sells a new product.
During a move to a new location, the inventory records for the product were misplaced.
The entity has been able to gather some information from the purchases and sales
records. The July purchases are as follows: Quantity Unit cost Total cost July 5 10,000
65 650,000 9 12,000 63 756,000 12 15,000 60 900,000 25 14,000 62 868,000 51,000
3,174,000 On July 31,15,000 units were on hand. The sales for July amount to
P6,000,000, or 60,000 units at P100 per unit. The entity has always used a periodic
FIFO inventory costing system. Gross profit on sales for July was P2,400,000. What is
the cost of inventory on July 1 ? A. 426,000 C. 2,400,000 B. 1,354,000 D. 2,826,000 P1
© 2014 61. Rona Company used the perpetual inventory system. The inventory
transactions for August of the current year were as follows: Units Unit cost Total cost
Aug. 1 Beginning 20,000 4.00 80,000 7 Purchase 10,000 4.20 42,000 10 Purchase
20,000 4.30 86,000 12 Sale 15,000 ? ? 16 Purchase 20,000 4.60 92,000 20 Sale
40,000 ? ? 28 Sale return 3,000 ? ? MCQ - Problems
Page 51
FINANCIAL ACCOUNTING The sale return relates to the August 20 sale. If the FIFO
cost flow method is used, the sale return would be costed back into inventory at what
unit cost? A. 4.00 C. 4.30 B. 4.20 D. 4.60 P1 © 2014 62. On April 1,2014, Toronto
Company had 6,000 units of merchandise on hand that cost P120 per unit. During the
month, the entity had the following transactions with regard to the merchandise: April 5
Purchased on account 15,000 units at P140 per unit 8 Returned 1,000 units from the
April 5 purchase. 29 Sold on account 16,000 units at P200 per unit. The entity used a
perpetual inventory system and a FIFO cost flow. What is the cost of goods sold for
April? A. 2,080,000 C. 2,144,000 B. 2,120,000 D. 2,200,000 P1 © 2014 63. Lagoon
Company accumulated the following data for the current year. Raw materials -
beginning inventory 90,000 units @ P7.00 Purchases 75,000 units @ P8.00 120,000
units @ P8.50 The entity transferred 195,000 units of raw materials to work in process
during the year. Work in process - beginning inventory 50,000 units @ P 14.00 Direct
labor 3,100,000 Manufacturing overhead 2,950,000 Work in process - ending inventory
48,000 units @ P15.00 The entity used the FIFO method for valuing inventory. What is
the cost of goods manufactured for the current year? A. 7,515,000 C. 8,235,000 B.
7,535,000 D. 8,280,000 P1 © 2014 FIFO & LIFO 64. ABC Company provided the
following net income and inventory: 2014 Net income using LIFO 2,750,000 Year-end
inventory - FIFO 1,400,000 Year-end inventory - LIFO 900,000 What is the net income
for 2015 using the FIFO cost flow? A. 2,600,000 C. 3,100,000 B. 2,900,000 D.
3,500,000 MCQ - Problems
2015 3,000,000 2,000,000 1,600,000 P1 © 2014 Page 52
Inventory – Cost Flow & Valuation Weighted-average method 65. Lane Company
provided the following inventory card during February: Purchase Units Balance Price
Units Used Units Jan. 10 100 20,000 20,000 31 10,000 10,000 Feb. 8 110 30,000
40,000 9 Returns from factory (Jan. 10 lot) (1,000) 41,000 28 11,000 30,000 Using the
weighted average method, what is the cost of inventory on February 28? A. 3,120,000
C. 3,180,000 B. 3,150,000 D. 3,300,000 P1 © 2014 66. Stephanie Company is a
wholesaler of photography equipment. The entity used the periodic average cost
method to account for inventory. The activity for the inventory of cameras during July is
shown below: Units Unit cost July 1 Inventory 20,000 36.00 7 Purchase 30,000 37.00
12 Sale 36,000 21 Purchase 50,000 37.88 22 Sale 38,000 29 Purchase 16,000 38.11
What is the ending inventory on July 31 ? A. 1,534,000 C. 1,587,360 B. 1,569,120 D.
1,594,640 P1 © 2014 Moving-average method 67. Frey Company recorded the
following data pertaining to raw material Y during January of the current year. Units .
Date Received Cost Issued On hand 1/1 Inventory 200 8,000 1/8 Issue 4,000 4,000
1/20 Purchase 12,000 240 16,000 What is the moving average unit cost of the inventory
on January 31? A. 220 C. 230 B. 224 D. 240 P1 © 2014 MCQ - Problems
Page 53
FINANCIAL ACCOUNTING 68. Celine Company provided the following data relating to
an inventory item. Units Unit cost Total cost Jan. 1 Beginning balance 5,000 200
1,000,000 10 Purchase 5,000 250 1,250,000 15 Sale 7,000 16 Sale return 1,000 30
Purchase 16,000 150 2,400,000 31 Purchase return 2,000 150 300,000 Under the
perpetual system, what is the moving average unit cost on January 31? A. 165 C. 181
B. 167 D. 225 P1 © 2014 69. Anders Company used the moving average method to
determine the cost of the inventory. During January of the current year, the entity
recorded the following information pertaining to its inventory: Units Unit cost Total cost
Balance on January 1 40,000 50 2,000,000 Sold on January 17 35,000 Purchased on
January 28 20,000 80 1,600,000 What amount of inventory should be reported on
January 31 ? A. 1,500,000 C. 1,850,000 B. 1,625,000 D. 2,000,000 P1 © 2014
Comprehensive Questions 1 & 2 are based on the following information. P1 © 2014
During January of the current year, Metro Company which maintains a perpetual
inventory system, recorded the following information pertaining to its inventory: Units
Unit cost 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 70. Under the moving average method, what amount
should Metro report as inventory on January 31 ? A. 2,640,000 C. 3,300,000 B.
3,225,000 D. 3,900,000
MCQ - Problems
Page 54
Inventory – Cost Flow & Valuation 71. Under the FIFO method, what amount should
Metro report as inventory on January 31 ? A. 1,300,000 C. 3,900,000 B. 2,700,000 D.
4,100,000 Questions 1 thru 3 are based on the following information. P1 © 2014 Yakal
Company reported that a flood recently destroyed many of the financial records. The
entity used an average cost inventory valuation system. The entity made a physical
count at the end of each month in order to determine monthly ending inventory value.
By examining various documents, the following data are gathered: Ending inventory at
July 31 60,000 units Total cost of units available for sale in July 1,452,100 Cost of
goods sold during July 1,164,100 Cost of beginning inventory, July 1 4.00 per unit
Gross profit on sales for July 935,900 Units Unit cost Total cost July 5 55,000 5.10
280,500 11 53,000 5.00 265,000 15 45,000 5.50 247,500 16 47,000 5.30 249,100 Total
purchases 200,000 1,042,100 72. What is the number of units on July 1 ? A. 60,000 B.
76,500
C. 102,500 D. 140,000
73. How many units were sold during the month of July? A. 140,000 C. 260,000 B.
242,500 D. 302,500 74. What is the cost of the inventory on July 31 ? A. 240,000 C.
312,600 B. 288,000 D. 410,000 Relative Sales Value Method 75. Casa Company
purchased a tract of land for P12,000,000. The entity incurred additional cost of
P3,000,000 during the remainder of the year in preparing the land for sale. The tract
was subdivided into residential lots as follows: MCQ - Problems
Page 55
FINANCIAL ACCOUNTING Lot class Number of lots Sales price per lot A 100 240,000
B 100 160,000 C 200 100,000 Using the relative sales value method, what amount of
cost should be allocated to Class A lots? A. 3,000,000 C. 6,000,000 B. 3,750,000 D.
7,200,000 FA © 2014 76. Solid Company purchased a plot of ground for P18,000,000.
The entity also paid an independent appraiser for the land the amount of P500,000. The
land was developed as residential lots at a total cost of P41,500,000. The lots were
classified as follows: Number of lots Sales price per lot Highland 20 1,000,000 Midland
40 750,000 Lowland 100 500,000 What total cost should be allocated to Highland lots?
A. 8,300,000 C. 11,900,000 B. 8,400,000 D. 12,000,000 P1 © 2014 77. Elixir Company
bought a 10-hectare land in Novaliches to be improved, subdivided into lots and
eventually sold. Purchase price of the land was P5,800,000. Taxes and documentation
expenses on the transfer of the property amounted to P80,000. The lots were classified
as follows: Lot class Number of lots Selling price per lot Total clearing cost A 10
100,000 None B 20 80,000 100,000 C 40 70,000 300,000 D 50 60,000 800,000 What
amount should be allocated as total cost of Class B lots under the relative sales price
method? A. 1,176,000 C. 1,276,000 B. 1,220,000 D. 1,700,000 P1 © 2014 78. Apitong
Company manufactures bath towels. The production comprises 60% of "Class A" which
sells for P500 per dozen and 40% of "Class B" which sells for P250 a dozen. During the
current year, 60,000 dozens were produced at an average cost of P360 a dozen. The
inventory at the end of the current year was as follows: MCQ - Problems
Page 56
Inventory – Cost Flow & Valuation 2,200 dozens "Class A" @ P360 792,000 3,000
dozens "Class B" @ P360 1,080,000 Total inventory 1,872,000 Using the relative sales
value method which management considers as a more equitable basis of cost
distribution, what is the measurement of the inventory? A. 1,170,000 C. 1,872,000 B.
1,665,000 D. 2,340,000 P1 © 2014 Questions 1 thru 3 are based on the following
information. P1 © 2014 Julius Company, a conglomerate, has three subsidiaries, Aye,
Bee and Cee. Aye Company is in commodity business. Inventory on January 1, 2014
totaled P240,000. Aye Company used the weighted average method. Quantities on
hand were 8,000 and 10,000 on January 1 and December 31,2014 respectively. Aye
Company made purchases of 25,000 units in 2014 at a total cost of P816,000. Bee
Company buys and sells land. On January 1,2014, a tract of land was bought for P
10,000,000. Costs of leveling the land amounted to P2,500,000. The lots were
subdivided as follows: 25 Class A to sell for P400,000 each' 30 Class B to sell for
P300,000 each 10 Class C to sell for P100,000 each On December 31,2014, the unsold
lots consisted of 15 Class A, 6 Class B and 3 Class C. Cee Company sells beds. The
perpetual inventory was stated at P1,960,000 on December 31, 2014. At the close of
the year, a new approach for compiling inventory was used and apparently a
satisfactory cutoff was not made. Some events that occurred are as follows: * Beds
shipped FOB shipping point to a customer on January 5, 2015 costing P200,000 were
included in inventory on December 31, 2014. * Beds costing P900,000 received
December 30, 2014 were recorded on January 2, 2015. * Beds received costing
P190,000 were recorded twice. * Beds shipped FOB shipping point to a customer on
December 28, 2014 per date shipping invoice which cost P700,000 were not recorded
as delivered until January 2015. * Beds on hand which cost P23 0,000 were not
recorded. 79. What is the ending inventory of Aye Company? A. 300,000 C. 320,000 B.
313,200 D. 326,400 MCQ - Problems
Page 57
FINANCIAL ACCOUNTING 80. What is the ending inventory of Bee Company? A.

3,900,000 C. 4,875,000 B. 4,050,000 D. 5,062,500 81. What is the ending inventory of
Cee Company? A. 2,200,000 C. 2,900,000 B. 2,390,000 D. 3,090,000 Lower of cost or
NRV 82. Based on a physical inventory taken on December 31,2014, Chewy Company
determined the chocolate inventory on a FIFO basis at P5,200,000 with a replacement
cost of P4,000,000. The entity estimated that, after further processing costs of
P2,400,000, the chocolate could be sold as finished candy bars for P8,000,000. The
normal profit margin is 10% of sales. Using the measurement at the lower of cost and
net realizable value, what amount should be reported as chocolate inventory on
December 31,2014? A. 4,000,000 C. 5,200,000 B. 4,800,000 D. 5,600,000 P1 © 2014
83. Winter Company provided the following inventory data at year-end: Cost Skis
2,200,000 Boots 1,700,000 Ski equipment 700,000 Ski apparel 400,000 What amount
should be reported as inventory at year-end? A. 4,800,000 C. 5,200,000 B 5,000,000 D.
5,300,000
NRV 2,500,000 1,500,000 800,000 500,000 P1 © 2014
84. Chicago Company has two products in the inventory. Product X Product Y Selling
price 2,000,000 3,000,000 Materials and conversion costs 1,500,000 1,800,000 General
administration costs 300,000 800,000 Estimated selling costs 600,000 700,000 At the
year-end, the manufacture of items of inventory has been completed but no selling
costs have yet been incurred. What is the measurement of Product X and Y,
respectively? A. 1,400,000 and 1,800,000 C. 1,500,000 and 1,800,000 B. 1,400,000
and 2,300,000 D. 1,500,000 and 2,300,000 P1 © 2014 MCQ - Problems
Page 58
Inventory – Cost Flow & Valuation 85. Greece Company provided the following data for
the current year: Inventory - January 1: Cost Net realizable value Net purchases
Inventory - December 31: Cost Net realizable value What amount should be reported as
cost of goods sold? A. 7,000,000 C. 7,200,000 B. 7,100,000 D. 7,300,000
3,000,000 2,800,000 8,000,000 4,000,000 3,700,000 P1 © 2014
86. Gracia Company used the lower of cost or net realizable value method to value
inventory. Data regarding the items in work in process inventory are presented below:
Markers Pens Highlight ers Historical cost 240,000 188,000 300,000 Selling price
360,000 250,000 360,000 Estimated cost to complete 48,000 50,000 68,000
Replacement cost 208,000 168,000 318,000 Normal profit margin as a percentage of
selling price 25% 25% 10% What is the measurement of the work in process inventory?
A. 676,000 C. 720,000 B. 694,000 D. 728,000 P1 © 2014 87. On December 31,2014,
Julie Company reported ending inventory at P3,000,000, and the allowance for
inventory writedown before any adjustment at P150,000. Relevant information on
December 31,2014 follows: Product 1 Product 2 Product 2 Product 3 Historical cost
800,000 1,000,000 700,000 500,000 Replacement cost 900,000 1,200,000 1,000,000
600,000 Sales price 1,200,000 1,300,000 1,250,000 1,000,000 Net realizable value
550,000 1,100,000 950,000 350,000 Normal profit 250,000 150,000 300,000 300,000
What amount of loss on inventory writedown should be included in cost of goods sold?
A. 100,000 C. 250,000 B. 200,000 D. 400,000 P1 © 2014
MCQ - Problems
Page 59
FINANCIAL ACCOUNTING 88. Uptown Company used the perpetual method to record
inventory transactions for 2014. Inventory 1,900,000 Sales 6,500,000 Sales return
150,000 Cost of goods sold 4,600,000 Inventory losses 120,000 On December 24,2014,
the entity recorded a P150,000 credit sale of goods costing P100,000. These goods
were sold on FOB destination terms and were in transit on December 31,2014. The
goods were included in the physical count. The inventory on December 31,2014
determined by physical count had a cost of P2,000,000 and a net realizable value of
P1,700,000. Any inventory writedown is not yet recorded. What amount should be
reported as cost of goods sold for 2014? A. 4,500,000 C. 4,920,000 B. 4,720,000 D.
5,020,000 P1 © 2014 89. Altis Company reported the following information for the
current year: 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 the
year were as follows: Units Unit cost Total cost Beginning inventory, January 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 The accounting policy is to report inventory in the financial statements at the
lower of cost and net realizable value. Cost is determined under the first-in, first-out
method. The entity has determined that, on December 31,2014, the replacement cost of
inventory was P70 per unit and the net realizable value was P72 per unit. The normal
profit margin is P10 per unit. What amount should be reported as cost of goods sold for
the current year? A. 6,300,000 C. 6,700,000 B. 6,500,000 D. 6,900,000 P1 © 2014 90.
In 2014, North Company experienced a decline in the value of inventory resulting in a
writedown from P3,600,000 to P3,000,000. The entity used the allowance method to
record the necessary adjustment. In 2015, market conditions have improved
dramatically. On MCQ - Problems
Page 60
Inventory – Cost Flow & Valuation December 31,2015, the inventory had a cost of
P5,000,000 and net realizable value of P4,600,000. What is included in the adjusting
entry on December 31, 2015? A. Debit allowance for inventory writedown P200,000 B.
Credit allowance for inventory writedown P400,000 C. Debit gain on reversal of
inventory writedown P200,000 D. Credit gain on reversal of inventory writedown
P400,000 P1 © 2014 Questions 91 thru 93 are based on the following information. P1 ©
2014 White Company carried four items in inventory. The following per-unit data relate
to these items at the end of first year of operations: Category 1: A B Category 2: C D
Units
Cost
Sale price
Selling cost
Normal profit
25,000 20,000
105 85
130 90
15 10
20 10
40,000 30,000
50 65
45 75
5 15
5 10
91. What is the measurement of inventory under LCNRV applied to individual item? A.
7,625,000 C. 7,875,000 B. 7,725,000 D. 8,275,000 92. What is the measurement of
inventory under LCNRV applied to inventory category? A. 7,625,000 C. 7,875,000 B.
7,725,000 D. 8,275,000 93. What is the measurement of inventory under LCNRV
applied to inventory as a whole? A. 7,625,000 C. 7,875,000 B. 7,725,000 D. 8,275,000
Purchase commitment 94. On December 31, 2014, Dos Company has outstanding
purchase commitments for 50,000 gallons at P20 per gallon of raw material. It is
determined that the market price of the raw material has declined to P17 per gallon on
December 31,2014 and it is expected to decline further to P15 in the first quarter of
2015. What is the loss on purchase commitment that should be recognized in 2014? A.
0 C. 250,000 B 150,000 D. 850,000 P1 © 2014 MCQ - Problems
Page 61
FINANCIAL ACCOUNTING 95. On October 1, 2014, Gorgeous Company entered into a

6-month, P5,200,000 purchase commitment for a supply of a special product. On
December 31,2014, the market value of this material had fallen to P5,000,000.On
March 31, 2015, the market value of the purchase commitment is P4,900,000. What is
the loss on purchase commitment to be recognized on March 31,2015? A. 0 C. 200,000
B. 100,000 D. 300,000 P1 © 2014
96.
On November 15, 2014, Diamond Company entered into a commitment to purchase

10,000 ounces of gold on February 15,2015 at a price of P310 per ounce. On
December 31, 2014, the market price of gold is P270 per ounce. On February 15,2015,
the price of gold is P300 per ounce. What is the gain on purchase commitment to be
recognized on February 15,2015? A. 0 C. 300,000 B. 100,000 D. 400,000 P1 © 2014
97. On November 15, 2014, Damascus Company entered into a commitment to
purchase 100,000 barrels of aviation fuel for P55 per barrel on March 31, 2015. The
entity entered into this purchase commitment to protect itself against the volatility in the
aviation fuel market. By December 31,2014 the purchase price of aviation fuel had
fallen to P40 per barrel. However, by March 31, 2015, when the entity took delivery of
the 100,000 barrels the price of aviation fuel had risen to P60 per barrel. What amount
should be recognized as gain on purchase commitment for 2015? A. 0 C. 1,500,000 B.
500,000 D. 2,000,000 P1 © 2014 98. On January 1,2014, Card Company signed a
three-year, noncancelable purchase contract, which allows Card to purchase up to
5,000 units of a computer part annually from Hart Company at P100 per unit and
guarantees a minimum annual purchase of 1,000 units. During 2014, the part
unexpectedly became obsolete. Card had 2,500 units of this inventory on December
31,2014, and believed these parts can be sold as scrap for P20 per unit. What amount
of loss from the purchase commitment should be reported in the 2014 income
statement? A. 160,000 C. 240,000 B. 200,000 D. 360,000 P1 © 2014
MCQ - Problems
Page 62
Inventory – Cost Flow & Valuation ANSWER KEY – Theory 1.C 26.D 2.C 27.B 3.B 28.C
4.A 29.A 5.C 30.C 6.C 31.C 7.C 32.B 8.A 33.D 9.D 34.A 10.D 35.D 11.D 36.C 12.C
37.D 13.B 38.A 14.A 39.A 15.C 40.B 16.C 41.D 17.C 42.D 18.D 43.A 19.A 44.D 20.D
45.C 21.D 46.B 22.D 47.B 23.D 48.B 24.A 49.D 25.A 50.D
Answer Key
51.A 52.A 53.B 54.D 55.B 56.D 57.A 58.D 59.A 60.A 61.C 62.D 63.C 64.A 65.C 66.A
67.B 68.B 69.B 70.B 71.C 72.D 73.C 74.D 75.A
76.B 77.D 78.C 79.D 80.D 81.D 82.C 83.D 84.B 85.C 86.B 87.B 88.D 89.C 90.D 91.D
92.D 93.B 94.A 95.D 96.D 97.D 98.D 99.A 100.C
101.C 102.B 103.B 104.B 105.D 106.D 107.B 108.B 109.D 110.B 111.A 112.A 113.B
114.C 115.A 116.D
Page 63
FINANCIAL ACCOUNTING ANSWER KEY – PROBLEMS 1.B 26.D 2.C 27.B 3.B 28.A
4.B 29.D 5.A 30.B 6.B 31.D 7.B 32.C 8.A 33.A 9.D 34.B 10.B 35.C 11.D 36.C 12.A 37.D
13.A 38.B 14.B 39.B 15.C 40.C 16.C 41.D 17.C 42.D 18.A 43.D 19.D 44.B 20.B 45.A
21.C 46.B 22.B 47.B 23.B 48.B 24.D 49.D 25.C 50.D
Answer Key
51.B 52.A 53.B 54.D 55.D 56.B 57.D 58.D 59.C 60.B 61.D 62.B 63.A 64.B 65.C 66.B
67.C 68.B 69.C 70.B 71.C 72.C 73.B 74.B 75.C
76.D 77.B 78.B 79.C 80.D 81.A 82.C 83.A 84.A 85.B 86.C 87.C 88.C 89.B 90.A 91.A
92.B 93.C 94.B 95.B 96.C 97.C 98.A
Page 64
Inventory – Cost Flow & Valuation ANSWER EXPLANATION 1.
Answer is (B). Beginning inventory - 2015 Purchases Freight in Purchase discounts

Purchase returns Purchase allowances Goods available for sale Cost of sales- 2015
Ending inventory - 2015
(4,500,000 x 73%)
2,355,000 3,180,000 220,000 ( 45,000) (40,000) (15,000) 5,655,000 3,285,000

2,370,000
Sales Cost of sales Gross profit rate
100% 73% 27%
2.
Answer is (C). Cost of goods sold Ending inventory Cost of goods available for sale
3.
Answer is (B). Sales Less: Sales returns Net sales Cost of sales: Inventory – January
Purchases 5,500,000 Freight-in 250,000 Total 5,750,000 Less: Purchase returns, allow.
& discounts 150,000 Goods available for sale Less: Inventory – December 31 Gross
income Gross profit rate (1,500,000 / 4,500,000)
Answer Explanations & Solutions
(60% x 3,600,000)
2,160,000 240,000 2,400,000 6,200,000 200,000 6,000,000
1,000,000
5,600,000 6,600,000 2,100,000
4,500,000 1,500,000 33 1/3%
Page 65
FINANCIAL ACCOUNTING 4.
Answer is (B). Purchases Inventory-December 31 Cost of goods sold Markup on cost

(40% x 5,600,000) Sales (140% x 5,600,000) Collections from customers Accounts
receivable - December 31
7,000,000 (1,400,000) 5,600,000 2,240,000 7,840,000 (4,000,000) 3,840,000
5.
Answer is (A). Inventory – January 1 Purchases Goods available for sale Less:
Inventory – December 31 Cost of goods sold Gross profit Total sales Less: Cash sales
Sales on account Accounts receivable – January 1 Total Less: Collections Accounts
receivable – December 31
1,200,000 2,000,000 3,200,000 1,100,000 2,100,000 900,000 3,000,000 500,000

2,500,000 800,000 3,300,000 2,600,000 700,000
6.
Answer is (B). Net sales Inventory Purchases Goods available for sale Less: Cost of
sales Inventory – December 31
7.
Answer is (B). Credit sales Cash sales Total sales Gross profit Cost of sales Beginning
inventory
(1,200,000 x 5)
(6,000,000 x 60%)
6,000,000 1,800,000 4,500,000 6,300,000 3,600,000 2,700,000
950,000 + 60,000 + 4,400,000 – 1,100,000
4,310,000 640,000 4,950,000 30% (1,485,000) 3,465,000 840,000 + 3,465,000 –

3,500,000 805,000 Page 66
Inventory – Cost Flow & Valuation 8.
Answer is (A). Sales Cost of sales Gross margin
9.
Answer is (D). Cost of purchases Import duties Freight and insurance Other handling
costs Brokerage commission Total cost of purchases
10. Answer is (B). Gross invoice Purchase return Balance Purchase discount lost 11.
Answer is (D). Invoice price
(950,000 x 8) (1,150,000 x 4)
5,000,000 400,000 1,000,000 100,000 200,000 6,700,000
(2% x 3,700,000)
4,000,000 ( 300,000) 3,700,000 74,000
(900,000 x .80 x .90)
648,000
12. Answer is (A). Accounts payable per book Goods lost in transit, FOB shipping point
Purchase return Adjusted balance 13. Answer is (A). Accounts payable per book
Undelivered entity checks Goods purchased and received on Dec. 28, 2014 Purchase
discount (2% x 750,000) Total accounts payable The undelivered checks should be
adjusted as follows: Cash 2,000,000 Accounts payable Answer Explanations &
Solutions
7,600,000 4,600,000 3,000,000
2,000,000 100,000 (50,000) 2,050,000
750,000 (15,000)
4,500,000 2,000,000 735,000 7,235,000
2,000,000 Page 67
FINANCIAL ACCOUNTING 14. Answer is (B). Accounts payable per book 2,200,000
Goods shipped FOB shipping point on December 22, 2014 and lost in transit 40,000
Purchase returns (70,000) Advance payment erroneously debited to accounts payable
500,000 Adjusted accounts payable 2,670,000 Kew Company shall suffer the loss of the
goods in transit because the goods are shipped FOB shipping point. Appropriately, Kew
Company must file a claim against the common carrier. 15. Answer is (C). Purchases
through March 15, 2014 (4,900,000 / 98%) Inventory-12/31/2013, at cost (1,500,000/
150%) Total gross amount to be paid 16. Answer is (C). Accounts payable per book
Undelivered checks Unrecorded purchases on Dec. 28 Purchase on December 20
Adjusted accounts payable 17. Answer is (C). List price Trade discounts: Invoice price
Cash discount (2% x 2,800,000) Net amount Add: Reimbursement of delivery cost Total
remittance from Burr 18. Answer is (A). Accounts payable Cash Inventory Answer
Explanations & Solutions
5,000,000 1,000,000 6,000,000
(150,000 x 98%) (200,000 x 95%)
30% x 5,000,000 20% x 3,500,000
1,350,000
900,000 400,000 147,000 190,000 1,637,000 5,000,000 (1,500,000) 3,500,000

( 700,000) 2,800,000 ( 56,000) 2,744,000 200,000 2,944,000
1,323,000 27,000 Page 68
Inventory – Cost Flow & Valuation 19. Answer is (D). Accounts payable at gross
Discounts available in the accounts payable balance Accounts payable at net
1,500,000 (10,000) 1,490,000
20. Answer is (B). Purchases of IBM compatibles Purchases of commercial software

packages Returns and allowances Net purchases Discounts available on purchases
(2% x 2,850,000) Purchase discounts taken Discount lost
1,700,000 1,200,000 (50,000) 2,850,000 57,000 (17,000) 40,000
21. Answer is (C). Net method Purchases (800,000 + 1,000,000) 1,800,000 Purchase
discount taken (2% x 800,000) (16,000) Purchase discount not taken (2% x 1,000,000)
(20,000) Net amount 1,764,000 Under the net method, the purchase discount is
deducted from purchases regardless of whether taken or not taken. Gross method
Purchases 1,800,000 Purchase discount taken (16,000) Net purchases 1,784,000
Under the gross method, the purchases are recorded at gross and only the purchase
discount taken is deducted from purchases in determining cost of goods available for
sale. 22. Answer is (B). Purchase return, gross Purchase discount Net purchases 23.
Answer is (B). Purchase discount
300,000 x 2%
300,000 (6,000) 294,000
(4,000,000 – 300,000) x 2%
74,000
Page 69
FINANCIAL ACCOUNTING 24. Answer is (D). List price 600,000 Trade discount (20% x
600,000) (120,000) Balance 480,000 Trade discount (10% x 480,000) ( 48,000) Invoice
price 432,000 Freight charge 15,000 Total cost of purchase 447,000 Purchases are
normally recorded at gross. Thus, the cash discount is ignored. 25. Answer is (C). All
costs incurred except abnormal freight 26. Answer is (D). All costs are inventoriable. 27.
Answer is (B). Materials Production labor cost Production overhead Value of completed
inventory
300,000 330,000 120,000 750,000
28. Answer is (A). When the shipping terms are FOB destination, the seller is
responsible for costs incurred in transporting the goods to the buyer. 29. Answer is (D).
Inventory shipped on consignment to Beta Freight paid by Stone Total cost of
consigned inventory
1,800,000 90,000 1,890,000
30. Answer is (B). Merchandise purchased Freight in Purchase returns Inventoriable

cost
4,000,000 100,000 (20,000) 4,080,000

31. Answer is (D). Cost of purchases Import duties
5,000,000 400,000
Page 70
Inventory – Cost Flow & Valuation Freight and insurance Other handling costs
Brokerage commission Total cost of purchases 32. Answer is (C). Raw materials Goods
in process Finished goods Total
1,000,000 100,000 200,000 6,700,000 1,350,000 2,950,000 3,600,000 7,900,000
33. Answer is (A). Materials Irrecoverable purchase taxes Total cost of inventory 34.
Answer is (B). Items counted in the bodega Items included in count specifically
segregated Items returned by customer Items ordered and in receiving department
Items shipped today, FOB destination Items for display Items on counter for sale
Damaged and unsalable items included in count Items in the shipping department 35.
Answer is (C). Materials Goods in process Finished goods in factory Finished goods in
entity-owned retail store Finished goods in the hands of consignees Finished goods in
transit Finished goods out on approval Materials in transit Correct inventory Answer
Explanations & Solutions
700,000 60,000 760,000 4,000,000 ( 100,000) 50,000 400,000 150,000 200,000

800,000 ( 50,000) 250,000 5,700,000
(750,000/150%) (400,000 x 60%) (330,000 + 30,000)
1,400,000 650,000 2,000,000 500,000 240,000 250,000 100,000 360,000 5,500,000

Page 71
FINANCIAL ACCOUNTING 36. Answer is (C). Finished goods Finished goods held by
salesmen Goods in process (720,000/80%) Materials Factory supplies Correct inventory
(110,000 + 60,000)
2,000,000 100,000 900,000 1,000,000 170,000 4,170,000
37. Answer is (D). Goods on hand Goods purchased in transit Goods out on
consignment Total inventory
2,600,000 200,000 300,000 3,100,000
38. Answer is (B). Goods on hand Goods sold in transit Total inventory
1,900,000 100,000 2,000,000
39. Answer is (B). Physical inventory Merchandise shipped FOB seller Correct inventory
4,000,000 50,000 4,050,000
40. Answer is (C). Physical count = 1,500,000 41. Answer is (D). Physical count
2,500,000 Merchandise shipped FOB shipping point on Dec. 30. 2014 from a vendor
100,000 Goods shipped FOB shipping point to a customer on January 4, 2015 400,000
Correct inventory 3,000,000 42. Answer is (D). Goods on hand Goods purchased in
transit Goods out on consignment Total inventory Answer Explanations & Solutions
2,600,000 200,000 300,000 3,100,000 Page 72
Inventory – Cost Flow & Valuation 43. Answer is (D). Physical count 6,000,000 Goods
shipped FOB shipping point on December 30, 2014 to Hero and received January 4,
2015 300,000 Inventory, December 31,2014 6,300,000 The goods costing P125,000
are properly included in the December 31,2014 physical count because the goods are
shipped FOB shipping point only on January 7,2015 (picked up by common carrier). 44.
Answer is (B). Physical count Inventory marked “hold for shipping instruction” Goods in
process Correct inventory
3,600,000 80,000 300,000 3,980,000
45. Answer is (A). Physical count Inventory marked "hold for shipping instructions"
Correct amount of inventory
5,000,000 500,000 5,500,000
46. Answer is (B). Inventory per book Item 3 Item 4 Item 5 Adjusted inventory
950,000 12,500 52,500 27,000 1,042,000
(18,500-1,000/140%) (50,000 + 2,500) (35,000 /140% = 25,000 + 2,000)
47. Answer is (B). Reported inventory Goods sold in transit, FOB destination Goods
purchased in transit, FOB shipping point Correct amount of inventory 48. Answer is (B).
Inventory before adjustment Goods out on consignment Goods purchased, FOB
shipping point Goods sold, FOB shipping point Answer Explanations & Solutions
2,000,000 200,000 300,000 2,500,000 7,600,000 1,000,000 250,000 ( 850,000) Page

73
FINANCIAL ACCOUNTING Goods sold, FOB destination Goods sold, FOB destination
Correct inventory 49. Answer is (D). Physical count Goods sold in transit, FOB
destination Goods purchased in transit, FOB shipping point Adjusted inventory 50.
Answer is (D). Inventory per book Inventory transferred to delivery department
Shipment covered by bill of lading Goods in transit, purchased FOB destination Correct
inventory 51. Answer is (B). Inventory per physical count Inventory marked "hold for
shipping instructions" Goods in process inventory Goods shipped FOB seller or FOB
shipping point Correct inventory
260,000 840,000 9,100,000 4,410,000 380,000 510,000 5,300,000 5,000,000 80,000

800,000 ( 25,000) 5,855,000 3,600,000 80,000 300,000 50,000 4,030,000
52. Answer is (A). Merchandise in transit purchased FOB destination Markup on goods
out on consignment (195,000-150,000) Markup on merchandise for approval
Merchandise held on consignment Total reduction 53. Answer is (B). Inventory -
December 31,2013 Purchases-2014 Goods available for sale Inventory - December
31,2014 Cost of goods sold
100,000 45,000 10,000 35,000 190,000
360,000 3,000,000 3,360,000 ( 380,000) 2,980,000
Page 74
Inventory – Cost Flow & Valuation 54. Answer is (D). Beginning inventory Purchases
Freightin (100,000+ 50,000) Goods available for sale Ending inventory Cost of goods
sold
1,220,000 5,400,000 150,000 6,770,000 (1,650,000) 5,120,000
55. Answer is (D). Freezers sold (10 x P20,000) = 200,000 56. Answer is (D). Payable
for consigned goods (500,000 - 50,000) 450,000 57. Answer is (D). January 18 28 Total
FIFO cost
Units 150,000 100,000 250,000
Unit cost 23 24
58. Answer is (D). Beginning inventory Purchases (30,000 + 48,000 + 16,000) Total
units available Sales (36,000+ 38,000) Ending inventory in units From August 21
purchase (24,000 x 38.00) From August 29 purchase (16,000 x 38.60) Total cost of
inventory, August 31
Total cost 3,450,000 2,400,000 5,850,000 20,000 94,000 114,000 ( 74,000) 40,000
912,000 617,600 1,529,600
59. Answer is (C). From March 5 purchase (4,500 units x 73.50) 330,750 Whether
periodic or perpetual system, the FIFO inventory is the same. 60. Answer is (B). Sales
Gross profit Cost of goods sold Inventory - July 31 (see below) Cost of goods available
for sale Purchases for July Answer Explanations & Solutions
6,000,000 (2,400,000) 3,600,000 928,000 4,528,000 (3,174,000) Page 75
FINANCIAL ACCOUNTING Inventory - July 1 July 12 25 FIFO inventory - 7/31
1,354,000 Quantity 1,000 14,000 15,000
Unit cost 60 62
Total cost 60,000 868,000 928,000
61. Answer is (D). Under the perpetual FIFO cost flow, the sale return is costed back
into inventory at the latest unit purchase cost of P4.60. 62. Answer is (B). April 1 5 Total
goods sold
Units sold 6,000 10,000 16,000
Unit cost 120 140
Total cost 720,000 1,400,000 2,120,000
63. Answer is (A). Beginning raw materials (90,000 x 7) 630,000 Purchases (75,000 x 8
+ 120,000 x 8.50) 1,620,000 Raw materials available for use 2,250,000 Ending raw
materials (90,000 x 8.50) (765,000) Raw materials used 1,485,000 Direct labor
3,100,000 Manufacturing overhead 2,950,000 Total manufacturing cost 7,535,000
Beginning work in process (50,000 x 14) 700,000 Total work in process 8,235,000
Ending work in process (48,000 x 15) ( 720,000) Cost of goods manufactured 7,515,000
Beginning raw materials of 90,000 units plus purchases of 75,000 and 120,000 minus
195,000 units transferred equals 90,000 ending raw materials. 64. Answer is (B). Net
income - LIFO Understatement inventory2014'( 1,400,000- 900,000) 2015 (2,000,000-
1,600,000) Net income - FIFO Answer Explanations & Solutions
2014 2,750,000 500,000 3,250,000
2015 3,000,000 ( 500,000) 400,000 2,900,000 Page 76
Inventory – Cost Flow & Valuation 65. Answer is (C). Unit cost Total cost 20,000 100
30,000 110 50,000 Weighted average unit cost (5,300,000/50,000) Cost of inventory
(30,000 x 106) January February
Units 10 8
2,000,000 3,300,000 5,300,000 106 3,180,000
66. Answer is (B). July 1 Inventory 7 Purchase 21 Purchase 29 Purchase Total goods
available (4,333,760/116,000) Sales (36,000+ 38,000) Ending inventory 67. Answer is
(C). January 1 8 4,000 20 (3,680,000/16,000 = 230) 68.
Answer is (B). Jan. 1 10 15 16 30 31
Beginning balance Purchase Balance Sale Balance Sale return Balance Purchase
Balance Purchase return Balance
Units 20,000 30,000 50,000 16,000
Unit cost 36.00 37.00 37.88 38.11
Total cost 720,000 1,110,000 1,894,000 609,760
116,000 ( 74,000) 42,000
37.36
4,333,760
37.36
1,569,120
Units 8,000 (4,000) 200 12,000 16,000
Unit cost 200 200 240 230
Total cost 1,600,000 (800,000) 800,000 2,880,000 3,680,000
Units 5,000 5,000 10,000 (7,000) 3,000 1,000 4,000 16,000 20,000 (2,000) 18,000
Unit cost 200 250 225 225 225 225 225 150 165 150 167
Total cost 1,000,000 1,250,000 2,250,000 (1,575,000) 675,000 225,000 900,000

2,400,000 3,300,000 ( 300,000) 3,000,000
Page 77
FINANCIAL ACCOUNTING Observe that the moving average unit cost changes every
time there is a new purchase or a purchase return. The moving average unit cost is not
affected by a sale or a sale return.
69. Answer is (C). January 1 January 17 Balance January 28 Balance 70. Answer is
(C). January 1 January 7 Balance (2,800,000/16,000) January 20 sale Balance January
25 Balance (3,225,000/11,000)
Units 40,000 (35,000) 5,000 20,000 25,000 Units 10,000 6,000 16,000 ( 9,000) 7,000
4,000 11,000
Unit cost 50 50 50 80 74 Unit cost 100 300 175 175 175 500 293
Total cost 2,000,000 (1,750,000) 250,000 1,600,000 1,850,000 Total cost 1,000,000
1,800,000 2,800,000 (1,575,000) 1,225,000 2,000,000 3,225,000
71. Answer is (C). Units Unit cost Total cost January 1 1,000 100 100,000 January 7
6,000 300 1,800,000 January 25 4,000 500 2,000,000 Total FIFO cost 11,000
3,900,000 Note again that the FIFO cost will be the same whether periodic system or
perpetual system. 72. Answer is (B). Cost of units available for sale for July Purchases
for July Cost of inventory - July 1 Number of units - July 1 (410,000/P4)
1,452,100 (1,042,100) 410,000 102,500
Page 78
Inventory – Cost Flow & Valuation 73. Answer is (B). July 1 inventory Purchases for July
Total units available for sale for July July 31 inventory Units sold during the month of
July 74. Answer is (B). Average unit cost Inventory - July 31
102,500 200,000 302,500 (60,000) 242,500 (1,452,100/ 302,500) (60,000 x 4.80)
Another approach Cost of units available for sale for July Cost of goods sold for July
Inventory - July 31
4.80 288,000 1,452,100 (1,164,100) 288,000
75. Answer is (C).
Sales price Fraction Allocated cost 24,000,000 24/60 6,000,000 16,000,000 16/60
4,000,000 20,000,000 20/60 5,000,000 60,000,000 15,000,000 Incidentally, the cost of
each class A lot is P6,000,000 divided by 100 lots or P60,000. A B C
(100 x 240,000) (100 x 160,000) (200 x 100,000)
76. Answer is (D). Highland Midland Lowland

( 20 x 1,000,000) (40 x 750,000) (100 x 500,000)
Sales price 20,000,000 30,000,000 50,000,000 100,000,000
Fraction 20/100 30/100 50/100
Total cost 12,000,000 18,000,000 30,000,000 60,000,000
77. Answer is (B). A B C D
(10x100,000) (20x80,000) (40x70,000) (50x60,000)
Sales price 1,000,000 1,600,000 2,800,000 3,000,000 8,400,000
Fraction 10/84 16/84 28/84 30/84
Allocated cost 700,000 1,120,000 1,960,000 2,100,000 5,880,000 Page 79
FINANCIAL ACCOUNTING Allocated cost of Class B Clearing cost of Class B Total

cost
1,120,000 100,000 1,220,000
78. Answer is (A). Class A Class B
(60% x 60,000) (40% x 60,000)
Units 36,000 24,000 60,000
Sales price 500 250
Total average cost (60,000 x 360) Allocated cost: Class A (18/24 x 21,600,000) Class B
( 6/24 x 21,600,000) Total average cost Unit cost: Class A (16,200,000/36,000) Class B
( 5,400,000/24,000) Inventory cost: Class A (2,200x450) Class B (3,000 x 225) Total
inventory
16,200,000 5,400,000 21,600,000 450 225 990,000 675,000 1,665,000
79. Answer is (C).
Units January 1 8,000 Purchases 25,000 Goods available for sale 33,000 Inventory -
December 31 (1,056,000 / 33,000 = 32 x 10,000)
80. Answer is (D). Class A (25x400,000) Class B (30 x 300,000) Class C (10x100,000)
Class A (6,250,000/25) Class B (5,625,000/30) Answer Explanations & Solutions
Total 18,000,000 6,000,000 24,000,000 21,600,000
Cost 240,000 816,000 1,056,000 320,000
Sales price 10,000,000 9,000,000 1,000,000 20,000,000
Fraction 10/20 9/20 1/20
Cost 6,250,000 5,625,000 625,000 12,500,000
Cost per lot 250,000 187,500
Unsold 15 6
Cost 3,750,000 1,125,000 Page 80
Inventory – Cost Flow & Valuation Class C ( 625,000/10) Total inventory
62,500
81. Answer is (A). Inventory per book Beds received December 30, 2014 recorded
January 2, 2015 Beds received recorded twice Beds shipped FOB shipping point on
December 30, 2014 recorded January 2015 Beds on hand unrecorded Correct
inventory
187,500 5,062,500 1,960,000 900,000 ( 190,000) ( 700,000) 230,000 2,200,000
82. Answer is (C). Estimated sales price Cost to complete - processing cost Net
realizable value
8,000,000 (2,400,000) 5,600,000
FIFO cost 5,200,000 Nee realizable value 5,600,000 LCNRV 5,200,000 The FIFO cost
of P5,200,000 is the inventory valuation because it is lower than the net realizable
value. 83. Answer is (A). Cost NRV 2,200,000 2,500,000 1,700,000 1,500,000 700,000
800,000 400,000 500,000 5,000,000 5,300,000 Inventories shall be measured at the
lower of cost and net realizable value individual item. Skis Boots Ski equipment Ski
apparel
LCNRV 2,200,000 1,500,000 700,000 400,000 4,800,000 applied by

84. Answer is (A). Inventories shall be measured at the lower of cost and net realizable
value applied by individual item. Net realizable value is the estimated selling price less
the estimated cost to complete and the estimated cost of disposal.
Page 81
FINANCIAL ACCOUNTING Product X 1,500,000 2,000,000 ( 600,000) 1,400,000

1,400,000
Materials and conversion costs Selling price Selling costs Net realizable value
Measurement at lower amount
Product Y 1,800,000 3,000,000 ( 700,000) 2,300,000 1,800,000
85. Answer is (B). Inventory - January 1, at cost 3,000,000 Net purchases 8,000,000
Goods available for sale 11,000,000 Inventory - December 31, at cost (4,000,000) Cost
of goods sold before inventory writedown 7,000,000 Loss on inventory writedown
100,000 Cost of goods sold after inventory writedown 7,100,000 Required allowance -
December 31 (4,000,000 - 3,700,000) 300,000 Allowance for inventory writedown -
January 1 (3,000,000-2,800,000) 200,000 Loss on inventory writedown 100,000 The
amount of any inventory writedown to net realizable value and all losses on inventory
shall be included in cost of goods sold. The amount of any reversal of inventory
writedown shall be deducted from cost of goods sold. 86. Answer is (C).
Value Markers 240,000 Pens 188,000 Highlighters 292,000 720,000 The measurement
at the lower of cost or net realizable value shall be applied on an individual basis or item
by item.
87. Answer is (C).
Historical cost 240,000 188,000 300,000
LCNRV 550,000 1,000,000 700,000 350,000 2,600,000 Note that under LCNRV,
replacement cost and normal profit are not taken into consideration. Product 1 Product
2 Product 3 Product 4
Cost 800,000 1,000,000 700,000 500,000
NRV 312,000 200,000 292,000
NRV 550,000 1,100,000 950,000 350,000

Page 82
Inventory – Cost Flow & Valuation Total cost 3,000,000 LCNRV 2,600,000 Required
allowance for inventory writedown Allowance before adjustment Increase in allowance
Loss inventory writedown Allowance for inventory writedown
400,000 (150,000) 250,000 250,000
250,000
88. Answer is (C). Physical inventory Net realizable value Inventory writedown
2,000,000 1,700,000 300,000
Cost of goods sold per book Cost of goods incorrectly recorded as sold Inventory losses
Loss on inventory writedown Adjusted cost of goods sold 89. Answer is (B). September
30 (40,000 x 75) December 31(10,000 x 80) FIFO cost Net realizable value (50,000 x
72) Inventory writedown Inventory - January 1 at cost Purchases Purchase discount
Goods available for sale Inventory - December 31 at cost Cost of goods sold before
inventory writedown Loss on inventory writedown Cost of goods sold after inventory
Writedown 90. Answer is (A). 2014 Loss on inventory writedown Allowance for inventory
writedown
4,600,000 (100,000) 120,000 300,000 4,920,000 3,000,000 800,000 3,800,000

3,600,000 200,000 1,200,000 9,300,000 ( 400,000) 10,100,000 ( 3,800,000) 6,300,000
200,000 6,500,000 600,000 600,000
Page 83
FINANCIAL ACCOUNTING 2015
Allowance for inventory writedown 200,000 Gain on reversal of inventory writedown

(600,000-400,000) 200,000
91. Answer is (C). Category 1: A B Category 2: C D
Category 1: A B Subtotal Category 2: C D Subtotal Grand total LCNRV - by individual

item 92. Answer is (B).
(a) Units
(b) Unit cost

(c) NRV
25,000 20,000
105 85
115 80
40,000 30,000
50 65
40 60
(a x b) Total cost
(a x c) NRV
LCNRV
2,625,000 1,700,000 4,325,000
2,875,000 1,600,000 4,475,000
2,625,000 1,600,000
2,000,000 1,950,000 3,950,000 8,275,000
1,600,000 1,800,000 3,400,000 7,875,000
1,600,000 1,800,000 . 7,625,000 7,625,000
Total cost 4,325,000 3,950,000
NRV 4,475,000 3,400,000
Lower 4,325,000 3,400,000 7,725,000
LCNRV - by category
Category 1 Category 2 93. Answer is (B). Total cost Total NRV LCNRV - by total
94. Answer is (B). Loss on purchase commitment (50,000 x 3) Answer Explanations &
Solutions
8,275,000 7,875,000 7,875,000 150,000 Page 84

Inventory – Cost Flow & Valuation 95. Answer is (B). Market value - December 31, 2014
Market value - March 31, 2015 Additional loss on purchase commitment in 2015
5,000,000 4,900,000 100,000
96. Answer is (C). Estimated liability for purchase commitment on 12/31/2014(10,000 x

40) 400,000 Entry on February 15, 2015 Purchases (10,000x300) 3,000,000 Estimated
liability for purchase commitment 400,000 Accounts payable (10,000 x 310) 3,100,000
Gain on purchase commitment 300,000 97. Answer is (C). Estimated
liability
for
purchase
commitment
on 12/31/2014 (100,000x15) 1,500,
000 To record the actual purchase on March 31,2015: Purchases (100,000x55)

5,500,000 Estimated liability for purchase commitment 1,500,000 Accounts payable
5,500,000 Gain on purchase commitment 1,500,000 The gain to be recognized is
limited to the loss on purchase commitment previously recorded.
98. Answer is (A). Remaining contract -1,000 units each year 2015 (1,000 x P100)
100,000 2016 (1,000 x P100) 100,000 Total 200,000 Estimated realizable value (2,000
x P20) 40,000 Loss on purchase commitment 160,000 A loss on inventory write-down
should also be recognized on December 31,2014 in the amount of P200,000 (2,500"
units x P80).
Page 85
Contact information
Ronald F. Clayton
info@pdfcoffee.com
Address:
Suite #AHA340, Rastenfeld 151, 3532 Krems-Land, Austria

Coffee

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Coffee

Uploaded by

Copyright:

Available Formats

ntermediate Accounting 1 | BSA-2201 CHAPTER 10 INVENTORIES

CLASSES OF INVENTORIES 1. Inventories of a trading concern 

“Merchandise Inventory” is the term generally applied to goods held by a trading

2. Inventories of manufacturing concern 

INVENTORIES OF A MANUFACTURING CONCERN 1. Finished Goods 

completed products which are ready for sale

have been assigned their full share of manufacturing costs

2. Goods in Process (Work in Process) 

Intermediate Accounting 1 | BSA-2201 

goods that are to be used in the production process

4. Factory or Manufacturing Supplies 

affirmative, the goods shall be included in the inventory.

negative, the goods shall be excluded in the inventory.

WHO IS THE OWER OF GOODS IN TRANSIT? FOB – free on board 1. FOB

2. FOB shipping point 

ownership is transferred upon shipment of the goods

therefore, the goods in transit are the property of the buyer

FREIGHT TERMS 1. Freight collect 

freight charge on the goods shipped is not yet paid

common carrier shall collect the same from the buyer

thus, the freight charge is actually paid by the buyer

freight charge on the goods shipped is already paid by the seller

Who Shoulders the Transportation Costs? seller buyer seller buyer

Who Pays the Shipper? seller buyer buyer seller

Intermediate Accounting 1 | BSA-2201 

2. CIF or Cost, insurance and freight 

CONSIGNED GOODS A consignment is a method of marketing goods in which the

STATEMENT PRESENTATION Inventories are generally classified as current assets.

Intermediate Accounting 1 | BSA-2201 The inventories shall be presented as one line

ACCOUNTING FOR INVENTORIES 1. Periodic System 

This approach gives actual or physical inventories.

This approach gives book or perpetual inventories.

ILLUSTRATION Periodic System

Purchases xxx Accounts payable xxx

Purchase of merchandise on account

Merchandise inventory xxx Accounts payable xxx

Payment of freight Merchandise inventory xxx Cash xxx on the purchase

Intermediate Accounting 1 | BSA-2201

Accounts payable Purchase return

Return of merchandise purchased to supplier

Accounts receivable xxx Sales xxx

Sale of merchandise on account

Sales return xxx Accounts receivable xxx

Return of merchandise sold from customer

Merchandise inventory-end xxx Income summary xxx

Adjustment of ending inventory

Accounts payable xxx Merchandise inventory xxx

Cost of goods sold xxx Merchandise inventory xxx

INVENTORY SHORTAGE OR OVERAGE If at the end of the accounting period, a

TRADE DISCOUNTS AND CASH DISCOUNTS 1. Trade discounts 

Intermediate Accounting 1 | BSA-2201 

thus, not recorded

its purpose is to encourage trading or increase sales

its purpose is to encourage prompt payment

Purchase discount is deducted from the purchases to arrive at net purchases.

Sales discount is deducted from sales to arrive at net sales revenue.

METHODS OF RECORDING PURCHASES 1. Gross method 

purchases and accounts payable are recorded at gross

in practice, most entities record purchases at gross invoice amount

despite theoretical shortcomings, this is supported on practical grounds

more convenient than the net method from a bookkeeping standpoint

purchases and accounts payable are recorded at net

Gross Method 200,000