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PRACTICAL ACCOUNTING 1 – REVIEW

STATEMENT OF FINANCIAL POSITION
INVENTORIES (SET C)

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. Tris Company incurred the ff. costs:

Materials P800, 000
Storage costs of finished goods 200, 000
Delivery to customers 50, 000
Irrecoverable purchase taxes 90, 000

At what amount should the inventory be measured?

a.P890, 000
b.P780, 000
c.P670, 000
d.P550, 000

2. Davion Company is a manufacturing entity. The cost of an inventory is shown on its card as follows:

Material 300,000
Production Labor 100,000
Production Overhead 50,000
General Administration 233,000
Marketing cost 212,000

What is the correct inventory value of the product?

a 500,000
b 450,000
c 300,000
d 1,000,000

3. A retailer imported goods at a cost of P 260,000, including P 40,000 non-refundable import duties
and P 20,000 refundable purchase taxes. The risks and rewards of ownership of the time imported
goods were transferred to the retailer upon collection of the goods from the harbor warehouse. The
retailer was required to pay for the goods upon collection. The retailer incurred P 10,000 to
transport the goods to its retail outlet and a further P 4,000 in delivering the goods to its customer.
Further selling costs of P 6,000 were incurred in selling the goods.

What amount should the inventory be valued?

a. 240,000
b. 250,000
c. 260,000
d. 270,000

4. On December 15, year 2, Flanagan purchased goods costing P100,000. The terms were FOB
shipping point. Costs incurred by Flanagan in connection with the purchase and delivery of the
goods were as follows:
Normal freight charges P3,000 Handling costs 2,000 Insurance on shipment 500 Abnormal freight
charges for express shipping 1,200 The goods were received on December 17, year 2. What is the
amount that Flanagan should charge to inventory and to current period expense?
Inventory Current period expense
a. P3,000 P3,700
b. P5,000 P1,700
c. P5,500 P1,200
d. P6,700 P0
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5. On December 28, year 2, Kerr Manufacturing Co. purchased goods costing P50,000. The terms
were FOB destination. Some of the costs incurred in connection with the sale and delivery of the
goods were as follows:
Packaging for shipment P1,000 Shipping 1,500 Special handling charges 2,000 These goods were
received on December 31, year 2. In Kerr’s December 31, year 2 balance sheet, what amount of
cost for these goods should be included in inventory?
a. P54,500
b. P53,500
c. P52,000
d. P50,000

6. Dasol Factory started operations in 2016. Dasol manufactures bath towels. 60% of the production
are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen.
During 2016, 6,000 dozens were produced at an average cost of P360 per dozen. The inventory at
the end of the year was as follows:

220 dozens “Class A” @ P360 P 79,200

300 dozens “Class B” @ P360 108,000
P187,200

QUESTIONS:
Using the relative sales value method, which management considers as a more equitable basis of
cost distribution, answer the following:

1. How much of the total cost should be allocated to “Class A”?

a. P1,296,000 c. P1,284,324
b. P1,620,000 d. P 925,714

2. How much of the total cost should be allocated to “Class B”?

a. P540,000 c. P 864,000
b. P875,676 d. P1,234,286

3. How much is the value of inventory as of December 31, 2016?

a. P187,200 c. P117,000
b. P187,946 d. P166,500

4. How much is the cost of sales for the year 2016?

a. P1,972,800 c. P2,043,000
b. P1,993,500 d. P1,972,054

5. How much is the gross profit for the year 2016?

a. P242,200 c. P221,500
b. P406,500 d. P242,946

7. Brady Corporation values its inventory at the lower of cost or net realizable value as required by
IFRS. Brady has the following information regarding its inventory:
Historical cost P1,000 Estimated selling price 900 Estimated costs to complete and sell 50
Replacement cost 800 What is the amount for inventory that Brady should report on the balance
sheet under the lower of cost or net realizable value method?
a. P1,000
b. P 900
c. P 850
d. P 750

8. A physical count of inventory at December 31,2015 revealed that Victory Enterprises had inventory
on hand at that date with a cost of P441,800. The annual audit identified that the following items
were excluded from this amount:

 Merchandise inventory of P61,000 is held by Victory on consignment. The consignor

is Genesis Company.
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 Merchandise costing P38,000 was shipped by Victory Enterprises FOB Destination

to a customer on December 31,2015.

 Merchandise costing P46,000 was shipped by Victory FOB Shipping point to a

customer on December 29,2016. The customer was scheduled to receive the goods
on January 6,2016.

 Merchandise costing P83,000 shipped by a vendor FOB Destination on December

31,2015 was received by Victory on January 4,2016.

 Merchandise costing P51,000 purchased FOB shipping point was shipped by the
supplier on December 31,2015 and received by Victory on January 5,2016.

What amount if inventory should be recorded in the December 31,2015 statement of financial
position of Victory enterprises?

a. P545,000 c. P540,400
b. P530,800 d.P645,000

9. San Antonio Company provided the following data on December 31, 2012:
Items counted in the bodega 500,000
Items in receiving department, returned by
Customer, in good condition 80,000
Items in the shipping department 250,000

Compute for the correct amount of the inventory on December 31, 2012.
a.P500,000 c.P580,000
b.P830,000 d.P750,000

10. A fire destroyed ASA company's inventor on October 31. On January 1, the inventory had a cost of
3,500,000. During the period January 32 to October 31, the entity had net purchases of 8,500,000
and net sales of 17,000,000. Undamaged inventory at the date of fire had a cost of 170,000. The
mark up on cost is 66 2/3%. What was the cost of inventory destroyed by fire?
a. 1,630,000
b. 1,970,000
c. 1,550,000
d. 5,170,000

11. The following information appears in Libra’s Company’s record for the year ended December 31,
2017:
Inventory, January 1 700,000
Purchases 2,300,000
Purchase returns 100,000
Freight in 80,000
Sales 3,500,000
Sales discount 40,000
Sales returns 30,000

On December 31, 2017, a physical inventory revealed that the ending inventory was only P400,000.
The gross profit on sales has remained constant at 30% in recent years. The entity suspects that
some inventory may have been pilfered by one of the entity’s employees.

On December 31, 2017, what is the estimated cost of missing inventory?

a. 700,000
b. 151,000
c. 511,000
d. 420,000
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12. On March 31, 2017 San Fabian Company had a fire which completely destroyed the factory building
And inventory of goods in process; some of the equipment was saved.
After the fire, a physical inventory was taken. The material was valued at P750, 000 and the
Finished goods at P620, 000.
The inventories on January 1, 2017 consisted of:
Materials P 310,000
Goods in process 1,215,000
Finished goods 1,700,000
Total P3, 225,000

A review of the accounting records disclosed that the sales and gross profit on sales for the last
Three years were:
Sales Gross profit
2014 P8, 000,000 P2,400,000
2015 7,600,000 2,215,000
2016 5,000,000 1,776,000

The sales for the first three months of 2017 were P3,000,000. Material purchases were P1,
250,000, transportation on purchases was P100,000 and direct labor cost for the three months was
P1,000,000. For the past two years, factory overhead cost has been 80% of direct labor cost.

QUESTIONS:
Based on the above and the result of your audit, compute the following:

1. The most likely gross profit rate to be used in estimating the inventory of goods in process
destroyed by fire
a. 31.55% c. 35.52%
b. 32.76% d. 36.00%

2. Total cost of goods placed in process

a. P2, 710,000 c. P3, 925,000
b. P973, 500 d. P4, 375,000

3. Total cost of goods manufactured

a. P3, 133,500 c. P 854,400
b. P 973,500 d. P3, 014,400

4. Inventory of goods in process lost

a. P 791,500 c. P 119,100
b. P1, 360,600 d. P2, 951,500

13. Having been engaged as external auditor of Mojofly Company on February 28, 2018, you were
unable to observe the taking of inventory on December 31, 2017 which was reported in the amount
of ?360,000. You were able to gather the following data.

Inventory, December 31, 2016 ? 320,000

Purchases during 2017 1,410,000
Cash Sales during 2017 350,000
Shipment received on December 26, 2017 included in
physical inventory, but not recorded as purchases 10,000
Deposits made with suppliers, entered as purchases
Goods were not received in 2017 20,000
Collections on account receivable, 2017 1,800,000
Accounts Receivable, January 1, 2017 250,000
Accounts Receivable, December 31, 2017 300,000
Gross profit percentage on sales 40%

The estimated inventory shortage at December 31, 2017 was

a. ?5,000
b. ?40,000
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c. ?50,000
d. ?60,000

14. Catwalk Company, a clothing store, uses the retail inventory method. The following information
relates to 2014 operations:

Inventory, January 1, 2014 at cost ? 142,000

Inventory, January 1, 2014 at sales price 204,000
Purchases at cost 313,000
Purchases at sales price 520,000
Additional mark-up on normal sales price 20,000
Sales (including ?80,000 of items which were 620,000
marked down from ?124,000)

Rounding the cost ratio to two decimal places, the cost of the December 31, 2014 inventory
determined by the retail inventory method is:

a. ?46,800
b. ?50,400
c. ?52,000
d. ?80,000

15. Detdet Company uses the retail inventory method to estimate its inventory for interim statement
purposes. Data relating to the computation of the inventory at July 31, 2017. are as follows
cost retail
Inventory 2/1/2017 70,000 110,000
Purrchases 350,000 500,000
Additional markups 90,000
Sales 600,000
Estimated normal shoplifting losses 10,000
Under the approximately lower of average cost or market retail method, Detdet's estimated
inventory at July 31, 2017 is.
a. 90,000 c. 60,000
b. 63,000 d. 54,000

16. Fortitude Company purchased cattle at an auction for P 200,000 on July 1,2017. Cost of
transporting the cattle back to the company’s’ farm was P 2,000 and the company would have to
incur cost similar transportation cost if it was to sell the cattle in the auction, in addition an
auctioneer’s fee of 2% of sales price. What amount should the biological assets be initially
recognized?

a. 194,000
b. 196,000
c. 198,000
d. 200,000

17. Angel Corp. produces milk on its farms. The entity produces 20% of the community's milk that is
consumed. Farmville Incorporated owns 5 farms and had a stock of 4,200 cows and 2,100 heifers.

The farms produce 1,600,000 kilograms of milk a year and the average inventory held is 30,000
kilograms of milk. However, on December 31,2017 the entity is currently holding 100,000 kilograms
of milk in powder. On December 31,2017, the biological assets are:

Purchased before January 1,2017. ( 3 years old ) 4,200 cows

Purchased on January 1,2017. ( 2 years old) 600 heifers
Purchased on July 1,2017. (1.5 years old) 1,500 heifers
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No animals were born or sold during the current year. The unit fair value less cost of disposal is as
follows:

January 1,2017:
1-year old. 3,000
2-year old. 4,000
July 1,2017:
1-year old. 3,000
December 31,2017:
1-year old. 3,200
2-year old. 4,500
1.5-year old. 7,200
3-year old. 10,000

The entity has had problems during the year. Contaminated milk was sold to customers. As a
result, milk consumption has gone down.

The entity's business is spread over different parts of the country. The only region affected by the
contamination was Quezon. However, the cattle in this area were unaffected by the contamination
and were healthy. The entity feels that it cannot measure the fair value of the cows in the region
because of the problems created by the contamination. There are 1,200 cows and 400 heifers in
the Quezon farm and all these animals had been purchased on January 1,2017.
1. What is the fair value of biological assets on January 1,2014?
a) 18,600,000
b) 19,200,000
c) 16,800,000
d) 14,400,000

2. What is the fair value of biological assets purchased on July 1,2017?

a) 4,500,000
b) 6,000,000
c) 7,500,000
d) 6,750,000

3. What is the fair value of biological assets on December 31,2017?

a) 29,100,000
b) 31,500,000
c) 30,450,000
d) 23,700,000

4. What is the increase in fair value of biological assets on December 31,2017?

a) 6,000,000
b) 10,500,000
c) 9,900,000
d) 12,300,000

5. What is the increase in fair value of biological assets due to physical change?
a) 2,520,000
b) 3,480,000
c) 6,000,000
d) 2,880,000

18. A herd of ten 2 yr-old animals was held at January 1, 2018. One animal aged (2.5 years old) was
purchased on July 1, 2018 for P10,800 and one animal was born on July 1, 2018. Two 3-yr old
animals were sold at 12/31/2018 for P13,500 each, the company incurring P1,500 sale of each.

Per unit fair vale less cost of disposal were as follows:

1/1/2018
2-yr old animal P 10,000
7/1/2018
New born animal 7,000
2.5-yr old animal 10,800
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12/31/2018
New born animal 7,200
0.5-yr old animal 8,000
3-yr old animal 10,500
2.5 yr old animal 11,100
3-yr old animal 12,000

i. Compute for the change in fair value less cost to sell of the biological asset due to price
change and physical change respectively.
a. 5,000; 27,300
b. 5,500; 23,700
c. 5,500; 27300
d. 5,000; 23700

ii. Which of the following entries in 2018 is false regarding the record for the transactions in the
biological assets?
a. 7/31/2018 debit entry to Biological Assets 10,800
b. 12/31/2018 credit entry to Increase in FV less CTS due to Physical Change 16,700
c. 12/31/2018 credit entry to Increase in FV less CTS due to Physical Change 23,700
d. 12/31/2018 debit entry to Cash 24,000

iii. The balance of Biological Assets account at December 31, 2018 is

a. 116,000
b. 126,000
c. 136,000
d. 146,000

19. Solo Company acquired assets for a lump sum amount of P 20,000,000 which is equal to the lump
sum value of the group of assets. At the time of purchase the company is unable to determine the
fair value of the trees separately since no archive market was clearly available. The other assets in
the group had a determinable fair value. The forest assets are listed below and their related fair
value less point of sell costs:
Land under trees 2,000,000
Roads in forest 1,000,000
1. What amount should the biological asset be initially recorded?
a. 1,000,000
b. 2,000,000
c. 17,000,000
d. 19,000,000

2. What amount should the non-current non-depreciable asset be initially recognized?

a. 1,000,000
b. 2,000,000
c. 17,000,000
d. 19,000,000

3. What amount should the non-current depreciable asset be initially recognized?

a. 1,000,000
b. 2,000,000
c. 17,000,000
d. 19,000,000

20. Central farm Corporation reported the following lists of biological assets and agricultural produce for
the year ended December 31,2018:

Assets Fair Value

Dairy cattle P 3,000,000
Beef of cattle 5,000,000
Sheep 2,000,000
Calves on dairy cattle 1,000,000
Calves on beef cattle 1,500,000
Lambs 800,000
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Milk on dairy cattle 500,000

Carcass on beef cattle 600,000
Wool 400,000

1. What amount of biological asset should Central Farm Company report in its December 31,2018
statement of financial position?
a. 8,000,000
b. 10,000,000
c. 13,300,000
d. 14,800,000

2. What amount should Central Farm Company report as inventory related to the above biological
assets?
a. 500,000
b. 600,000
c. 1,100,000
d. 1,500,000

21. On October 1, 2017, Angel Company entered into a 6-month, P5,200,000 purchase commitment for
a supply of a special product on March 31, 2018, On December 31, 2017, the market value of this
material had fallen to P5,000,000. O March 31, 2018, the market value of the purchase commitment
is P4,900,000. What is the loss on purchase commitment that should be recognized on March 31,
2018?
a. 200,000
b. 100,000
c. 300,000
d. 0

22. On January 1, year 2, Card Corp. signed a three-year noncancelable purchase

contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart
Supply Co. at P.10 per unit and guarantees a minimum annual purchase of 100,000 units. During
year 2, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at
December 31, year 2, and believes these parts can be sold as scrap for P.02 per unit. What amount
of probable loss from the purchase commitment should Card report in its year 2 income statement?
a. P24,000
b. P20,000
c. P16,000
d. P 8,000

23. On January 1, year 2, Dell, Inc. contracted with the city of Little to provide custom built desks for the
city schools. The contract made Dell the city’s sole supplier and required Dell to supply no less than
4,000 desks and no more than 5,500 desks per year for two years. In turn, Little agreed to pay a
fixed price of P110 per desk. During year 2, Dell produced 5,000 desks for Little. At December 31,
year 2, 500 of these desks were segregated from the regular inventory and were accepted and
awaiting pickup by Little. Little paid Dell P450,000 during year 2. What amount should Dell
recognize as contract revenue in year 2?
a. P450,000
b. P495,000
c. P550,000
d. P605,000

24. On October 20, year 2, Grimm Co. consigned forty freezers to Holden Co. for sale at P1,000 each
and paid P800 in transportation costs. On December 30, year 2, Holden reported the sale of ten
freezers and remitted P8,500. The remittance was net of the agreed 15% commission. What
amount should Grimm recognize as consignment sales revenue for year 2?
a. P 7,700
b. P 8,500
c. P 9,800
d. P10,000
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25. On December 1, year 2, Alt Department Store received 505 sweaters on consignment from Todd.
Todd’s cost for the sweaters was P80 each, and they were priced to sell at P100. Alt’s commission
on consigned goods is 10%. At December 31, year 2, five sweaters remained. In its December 31,
year 2 balance sheet, what amount should Alt report as payable for consigned goods?
a. P49,000
b. P45,400
c. P45,000
d. P40,400

26. The following accounts were included in the unadjusted trial balance of Super Text Company as of
December 31, 2017:

Cash P 240,800
Accounts Receivable 563,500
Merchandise Inventory 1,512,500
Accounts Payable 1,050,250
Accrued Expenses 107,750
During your audit, you noted that Super Text held its cash receipts books open after year-end. In
addition, your audit revealed the following:

 Receipts for January 2018 of P163,650 were recorded in the December 2017 cash
receipts journal. The receipts of P90,025 represent cash sales and P73,625
represents collections from the customers, net of 5% cash discounts.

 Accounts payable of P93,100 was paid in January 2018. The payments, on which
discounts of P3,100 were taken, were included in the December 2017 check register.

 Merchandise Inventory is valued at P1,512,500 prior to any adjustments. The

following information has been found relating to certain inventory transactions:

o Goods valued at P68,750 are on consignment with a customer. These goods

are not included in the P1,512,500 inventory figure.

o Goods costing P54,375 were received from a vendor on January 4, 2018.

The related invoiced was received and recorded on January 6, 2018. The
goods were shipped on December 31, 2017, terms FOB Shipping Point.

o Goods costing P159,375 were shipped on December 31, 2017 and were
delivered to the customers on January 3, 2018. The terms of the invoice were
FOB Shipping Point. The goods were included in the 2017 ending inventory
even though the sale was recorded in 2017.

o A P45,500 shipment of goods to a customer on December 30, terms FOB

Destination are not included in the year-end inventory. The goods cost
P32,500 and were delivered to customers on January 3, 2018. The sale was
properly recorded in 2018.

o The invoice for goods costing P43,750 was received and recorded as a
purchase on December 31, 2017. The related goods, shipped FOB
Destination were received on January 4, 2018, and thus were not included in
the physical inventory.

o Goods valued at P153,200 are on consignment from a vendor. These goods

are not included in the physical inventory.

Determine the adjusted balance of:

1. Cash
a. P167,150
b. P170,250
c. P173,350
d. P240,800
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2. Accounts Receivable, before allowance for sales discounts

a. P563,500
b. P637,125
c. P641,100
d. P727,150

3. Merchandise Inventory
a. P1.252,500
b. P1,465,000
c. P1,508,750
d. P1,520,00

4. Accounts Payable, before allowance for purchase discounts

a. P1,143,250
b. P1,150,875
c. P1,153,975
d. P1,197,725

27. The following account balances are presented by OUR Company:

2017 2018
Merchandise Inventory 150,000 90,000
Cash 180,000 ?
Accounts Receivable 240,000 180,000
Accounts payable 405,000 200,00

Assuming all sales and purchases are on account. The amount of cost of goods sold is P360,000
during the current year. The gross profit margin on sales is 20%.

i. What is the 2018 cash balance?

a. 105,000
b. 35,000
c. 55,000
d. 185,000

ii. What is the amount of purchases?

a. 300,000
b. 210,000
c. 240,000
d. 310,000