FINANCIAL ACCOUNTING & REPORTING

FAR_03: INVENTORIES

1) Presented below is a list of items that may or may not be reported as inventory in Nasumi Company’s December 31
statement of financial position located in Tagaytay:
Goods sold under a bill and hold sale, at the time of sale, the buyer accepts the billing, goods are on
hand, identified and ready for delivery to the buyer, the buyer specifically acknowledges the
deferred delivery, and is under special terms agreed 450,000
Goods sold on installment basis 100,000
Goods sold under Lay away sale, final installment payment is due on January 15 next year 300,000
Goods sold where large returns are predictable 280,000
Goods sold f.o.b. Tagaytay that are in transit as of December 31, the buyer is in Cebu 80,000
Goods sold f.o.b. Davao that are in transit as of December 31, the buyer is in Davao 80,000
Interest cost incurred for inventories that are routinely manufactured 40,000
Costs incurred to advertise goods held for resale 20,000
Raw Materials on hand not yet placed into production 350,000
Raw materials on which the company has started production, but which are not completely processed 280,000
Conversion costs incurred on goods still not completely processed 50,000
Work-in-process inventory, ending 330,000
Costs identified with units completed but not yet sold 260,000
Goods out on consignment at another company’s store 400,000
Goods purchased still in transit on December 31 on terms FAS (free alongside) 450,000
Goods purchased still in transit on December 31 on terms CIF (cost, insurance, and freight) 120,000
Goods purchased still in transit on December 31on terms Ex-ship 200,000
Freight charges on goods purchased 80,000
How much of these items would be reported as inventory in the financial statements?
A. 2,370,000 B. 2,250,000 C. 2,700,000 D. 2,820,000

2) The Jonna and Jonas Manufacturing Company reviewed its year-end inventory and found the following items:
(a) A packing case containing a product costing P100,000 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 customer’s order was dated Dec. 18, but the case was shipped and the costumer billed on January 10, 2024.
(b) Merchandise costing P600,000 was received on December 28, 2023, 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, 2024, costing P700,000 was entered in purchase register on January 7. The
invoice showed shipment was made FOB shipping point on December 31, 2023. 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, 2024.
(e) Merchandise costing P200,000 was received on January 6, 2024, and the related purchase invoice was recorded
January 5. The invoice showed the shipment was made on December 29, 2023, FOB shipping point.
(f) Merchandise costing P150,000 was sold on an installment basis on Dec. 15. The customer took possession of the
goods on that date. The merchandise was included in inventory because Jonna and Jonas Co. 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 Jonna and Jonas to buy back the inventory
in February 2024.
How much of these items should be included in the inventory balance at December 31, 2023?
A. 800,000 B. 1,300,000 C. 1,500,000 D. 1,650,000
3) Sues Company included the following items in its inventory on December 31, 2021:
• Merchandise out on consignment to Dactor Company, at sales price 3,000,000
• Goods purchased in transit, FOB shipping point 2,000,000
• Goods held on consignment from Strange Company 1,000,000
• Goods sold in transit, FOB shipping point, at sales price 4,500,000
• Freight paid by Sues on consigned goods to Dactor 100,000
• Freight paid by Strange Company 50,000
• Freight paid by Sues on goods purchased 10,000
• Freight paid by Sues on goods sold to customer 20,000
• Mark-up on cost on consigned goods still unsold at December 31, 2021 25%
How much should be included in Sues’ correct cost of inventory on December 31, 2021?
A. 5,010,000 B. 4,510,000 C. 4,410,000 D. 5,000,000
 4) The inventory control account balance of Luca Company at December 31, 2024 was P4,000,000 using the perpetual
inventory system. A physical count conducted on that day found inventory on hand worth of P3,400,000. Net realizable
value for each inventory item held for sale exceeded cost. An investigation of the discrepancy revealed the following:
• Goods costing P300,000 were sold on credit to Fernando for P500,000 on Dec. 28, 2024 FOB destination. The
goods were still in transit on Dec. 31, 2024. The sales invoice was raised and processed on Dec. 31, 2024.

• Goods costing P450,000 were purchased on credit FOB destination from Kimi Company on December 29, 2024.
The goods were received on December 30, 2024 and included in the physical count. The purchase invoice was
received on January 2, 2025.

• Goods costing P150,000 were purchased on credit from Alistair Company on December 27, 2024 FOB shipping
point. The goods were shipped on December 28, 2024 but, as they had not arrived by December 31, 2024, were
not included in the physical count. The purchase invoice was received and processed on December 31, 2024.

• Goods worth P200,000 held on consignment from Jensen Company had been included in the physical count.

• On December 31, 2024, Luca Company sold goods costing P750,000 on credit FOB shipping point to Ruben
Company for P1,000,000. The goods were dispatched from the warehouse on December 31, 2024 but the sales
invoice had not been raised at that date.

• Damaged inventory items valued P350,000 were discovered during the physical count. These items were still
recorded as of December 31, 2024 but were omitted from the physical count records pending their write-off.

What is Luca Company’s adjusted inventory amount?

A. 3,650,000 B. 3,600,000 C. 4,100,000 D. 4,000,000
5) On August 1, Stephan Company recorded purchases of inventory of P80,000 and P100,000 under credit terms of
2/15, net 30. The payment due on the P80,000 purchase was remitted on August 14. The payment due on the
P100,000 purchase was remitted on August 29. Under the net method and the gross method, these purchases should
be included at what respective net amounts in the determination of cost of goods available for sale?
Net method Gross method Net method Gross method
A. 178,400 176,400 C. 176,400 178,400
B. 176,400 176,400 D. 180,000 176,400

Use the following information for the next three (3) questions:
Magdalena Company is a wholesaler of perfume. The activity for product Bebebe during June is presented below
Date Transaction Units Selling Price Unit Cost
01 Inventory, begin 240 1,075
04 Purchases 190 1,135
12 Sales 220 1,200
19 Purchases 380 1,180
22 Sales 360 1,250
27 Purchases 200 1,200
6) Under FIFO method, how much is the ending inventory of product Bebebe at June 30?
A. 511,400 B. 516,000 C. 494,732 D. 504,976
7) How much is the cost of goods sold under Weighted Average method?
A. 667,319 B. 1,162,050 C. 657,074 D. 1,150,540
8) How much is the gross profit under Moving Average method?
A. 46,681 B. 63,350 C. 35,699 D. 56,926

9) The inventory records of Nemesis Corporation show the following purchases during the first quarter operations:
Units Total cost
January 15,000 187,500
February 20,000 240,000
March 13,000 167,700
The March 31 inventory using the weighted average method is P279,000. How much is the cost of inventory on March
31 of the company is using the periodic FIFO?
A. 279,000 B. 316,200 C. 281,700 D. 281,250
10) The trial balance of New Blame Company showed inventories of P164,000. The inventories include some goods that
have a production cost of P18,000. These goods have a manufacturing defect that will cost P6,000 to correct. The
normal selling price for these goods would be P25,000, but after the remedial work they will be sold through an agent
as refurbished goods at a discount of 20% on the selling price. The agent will received a commission of 10% of the
reduced selling price.
In relation to the defective goods, the company will recognized a loss on inventory write down of
A. 6,000 B. 4,000 C. 1,000 D. 0


FAR_03: INVENORIES PAGE 2 OF 10

 11) Squat Company uses the lower of cost or net realizable value inventory. Data regarding the items in work-in-process
inventory are presented below:
Product Under-hand Product Over-hand
Historical cost 24,000 18,800
Selling price 36,000 21,800
Estimated cost to complete 4,800 3,500
Estimated cost to sell 2,000 1,900
Replacement cost 20,800 16,800
Normal profit margin as a percentage of selling price 25% 25%
What amount should be reported as ending inventory using the LCNRV individual approach?
A. 45,600 B. 40,400 C. 42,800 D. 48,000

Use the following information for the next two (2) questions:
At year-end, Eagles Company reported ending inventory at P15,000,000 and the allowance for inventory writedown before
any adjustment at P800,000.
Product 1 Product 2 Product 3 Product 4
Historical cost 4,000,000 5,000,000 3,500,000 2,500,000
Replacement cost 4,500,000 6,000,000 5,000,000 3,000,000
Sales price 6,000,000 6,500,000 6,250,000 5,000,000
Net realizable value 2,750,000 5,500,000 4,750,000 1,750,000
Normal profit 1,250,000 750,000 1,500,000 1,500,000
12) What amount of loss on inventory writedown should be included in cost of goods sold?
A. 2,000,000 B. 2,800,000 C. 1,200,000 D. 1,250,000
13) What is the measurement of inventory in the statement of financial position?
A. 15,000,000 B. 13,000,000 C. 14,750,000 D. 18,750,000

Use the following information for the next two (2) questions:
The following information relate to an item of raw materials of Military Press Company as of August 31, 2021:
Replacement cost of raw materials – bars 635,000
Historical cost of raw materials – bars 650,000
Conversion cost of bars to become full barbell 200,000
14) How much is the value of the closing raw materials – bars if the finished goods barbell to be produced is expected to
be sold at P900,000.
A. 650,000 B. 635,000 C. 900,000 D. 850,000
15) How much is the value of the closing raw materials – bars if the finished goods barbell to be produced is expected to
be sold at P720,000.
A. 650,000 B. 635,000 C. 720,000 D. 850,000

Use the following information for the next two (2) questions:
Information pertaining to the inventory of Javelin Company for the ended December 31, 2022 follows:
Beginning inventory 200,000* Ending inventory 300,000**
Total purchases 830,000 Purchases returns 35,000
Freight-in 10,000 Purchase discounts 5,000
*Includes items A and B costing P20,000 and P30,000, respectively. The net realizable value of item A is P15,000 and item
B is P27,000.
**Includes cost of items A and B still unsold at the end of the year. The net realizable value of A is P23,000 and item B is
P29,000.

16) How much is the cost of goods sold under the direct method of accounting for write-off and reversal of write-down of
inventories?
A. 700,000 B. 698,000 C. 685,000 D. 693,000
17) How much is the ending inventory that should be reported in the statement of financial position on December 31, 2022
using the allowance method?
A. 300,000 B. 293,000 C. 299,000 D. 301,000

FAR_03: INVENORIES PAGE 3 OF 10



18) Goat Company’s pricing structure had been established to yield a gross margin of 30% based on cost. The entity
provided the following data for the year ended December 31, 2023:
Sales 5,000,000
Sales discount 65,000
Sales returns and allowance 125,000
Inventory, January 1 2,500,000
Purchases 2,000,000
Inventory, per actual count on December 31 400,000
The entity is satisfied that all sales and purchases have been fully and properly recorded. What amount should be
reported as reasonable estimate of a shortage in inventory on December 31
A. 400,000 B. 350,000 C. 750,000 D. 687,500

19) On December 31, 2017, a storm surge damaged the warehouse of Steelers Company. The entire inventory and many
accounting records were completely destroyed.
January 1 December 31
Inventory 1,500,000
Purchases 5,500,000
Cash sales 1,000,000
Collections of accounts receivable 8,000,000
Accounts receivable 2,000,000 500,000
Gross profit rate on sales 40%
What is the inventory loss from the storm surge?
A. 2,500,000 B. 4,000,000 C. 1,300,000 D. 1,600,000

20) On October 1, 2022, a fire damaged a warehouse of Marshall Law Corporation. The entire company and many
accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a
portion could be sold for scrap. Through the use of microfilmed records, the following data were gathered:
Inventory, January 1 575,400
Accounts payable, January 1 352,560
Accounts payable, October 1 491,400
Goods out on consignment on October 1 at cost 195,000
Payments to suppliers, January 1 to October 1 1,950,000
Collections of accounts receivable, January 1 to October 1 3,015,200
Accounts receivable, January 1 522,360
Accounts, receivable, October 1 515,560
Goods in transit on October 1 purchased FOB shipping point included in total purchases 69,500
Gross profit rate on sales 30%
How much is the estimated inventory loss?
A. 363,360 B. 293,860 C. 488,860 D. 558,360
21) On December 31, 2023, a typhoon damaged a warehouse of BB Corporation. The entire company and many
accounting records stored in the warehouse were completely destroyed. Although the inventory was not insured, a
portion could be sold for scrap. Through the use of microfilmed records, the following data were gathered.
Inventory, January 1 500,000
Purchases 2,200,000
Cash sales 273,600
Collection of accounts receivable (including the amount of recovery) 2,520,000
Accounts receivable, January 1 210,000
Accounts written off 9,600
Recovery of accounts written off 3,600
Allowance for bad debts, January 1 10,500
Accounts receivable, December 31 (net of allowance) 342,000
Sales returns 36,000
Sales discount 14,400
Purchase returns 60,000
Purchase discounts 12,000
Freight in 21,600
Salvage due of inventory 60,000
Gross profit percentage of sales 32%
The company consistently measures doubtful accounts in percent of accounts receivable. How much is the value of
inventory loss?
A. 513,600 B. 519,600 C. 538,080 D. 574,080

FAR_03: INVENORIES PAGE 4 OF 10

 Use the following information for the next three (3) questions:
The records of SCRIPT Inc. revealed the following information on September 30, 2019:
Cost Retail
Inventory, January 1, 2014 420,899 522,368
Purchases 2,865,240 4,076,380
Freight in 55,000
Freight out 210,000
Sales 3,272,020
Purchase returns 27,430 38,402
Sales allowance 25,500
Purchase allowance 18,286
Sales returns 55,500
Sales discount 22,200
Purchase discounts 15,500
Normal shrinkages 50,500
Normal shoplifting losses 150,000
Discount granted to employees 15,500
Departmental transfer in 25,500 64,000
Departmental transfer out 35,500 75,000
Mark ups 166,973
Mark downs 226,973
Mark up cancellations 45,000
Mark down cancellations 35,000
A disastrous fire completely destroyed the inventory on October 1, 2014. You were asked to estimate the cost of goods
which were completely destroyed on the said date.

22) Conventional retail method

A. 764,183 B. 753,715 C. 743,246 D. 732,778
23) Average cost method
A. 764,183 B. 753,715 C. 743,246 D. 732,778
24) FIFO retail method
A. 764,183 B. 753,715 C. 743,246 D. 732,778

Use the following information for the next two (2) questions:
ACCA Corporation had the following amounts under retail inventory method:
Beginning inventory cost 250,000 Purchases – cost 989,500
Purchase returns – cost 60,000 Sales (net of 2% discount) 1,234,800
Freight-in 80,000 Beginning inventory – retail 390,000
Sales returns 95,550 Purchases – retail 1,460,000
Purchase returns – retail 80,000 Purchase discount 18,000
25) How much is the estimated cost of ending inventory under FIFO method?
A. 393,607 B. 394,875 C. 396,394 D. 395,121
26) How much is the estimated cost of ending inventory under average method?
A. 393,607 B. 394,875 C. 396,394 D. 395,121

27) On February 20, 2020, a flood completely destroyed the goods in process inventory and half the raw materials
inventory of the Climb Company. There was no damage to the finished goods inventory. A physical inventory taken
after the flood indicated the following values:
Raw materials P 35,000 Finished goods P 75,000
A review of the accounting records indicated the following:
Inventories, December 31, 2020
Raw materials P 65,000 Raw materials purchases P 20,000
Goods in process 80,000 Direct labor cost 30,000
Finished goods 72,000 Manufacturing overhead cost 15,000
Sales (to February 20) 40,000 Gross profit rate (on sales) 40%
The value of the inventory destroyed by flood is
A. 113,000 B. 148,000 C. 156,000 D. 183,000

FAR_03: INVENORIES PAGE 5 OF 10

 28) Flamer Company, a manufacturer, had inventories at the beginning and end of its current year as follows:
Beginning Ending
Raw materials 11,000 15,000
Work in process 20,000 24,000
Finished goods 12,500 9,000
During the year, the following costs and expenses were incurred:
Raw materials purchased 150,000
Direct labor cost 60,000
Indirect factory labor 30,000
Taxes and depreciation on factory building 10,000
Taxes and depreciation on sales room and office 7,500
Sales salaries 20,000
Office salaries 12,000
Utilities (60% applicable to factory, 20% to sales room, and 20% to office) 25,000
Flamer’s cost of goods sold for the year is
A. 257,000 B. 260,500 C. 261,000 D. 269,500

29) On October 1, 2023, Saint Company consigned 50 sewing machines to Matthew Company for sale at P20,000 each
and paid P40,000 in transportation cost. On December 31, 2023, Matthew reported the sale of 30 sewing machines
and 5 sewing machines were returned back to consignor. Saint Company paid P4,000 freight cost for the returned
units. The consignee is entitled to a commission of 15% commission on the selling price. The consignee remitted
P465,000 after deducting a total commission of P135,000. If Saint Company has a net profit of P118,000 from the
above transactions, what is the cost of the inventory held by the consignee?
A. 180,000 B. 184,000 C. 192,000 D. 196,000

30) On October 20, 2024, AAA Co. consigned 40 freezers to BBB Co. for sale at P1,000 each and paid P800 in
transportation costs. On December 30, 2024, BBB reported the sale of 10 freezers and remitted P8,500. The
remittance was net of the agreed 15% commission. What amount should AAA recognize as consignment sales revenue
for 2024?
A. 7,700 B. 8,500 C. 9,800 D. 10,000

31) On October 1, 2024, Saints Company consigned 50 sewing machines to Giants Company for sale at P20,000 each
and paid P40,000 in transportation cost. On December 31, 2024, Giants reported the sale of 30 sewing machines and
remitted P510,000. The remittance was net of the agreed 15% commission. Saints Company reported a P96,000 net
profit form the sale of consigned units. What is the total cost of the remaining units still in the possession of the
consignee?
A. 260,000 B. 276,000 C. 300,000 D. 400,000

Use the following information for the next three (3) questions:
During 2021, Tartarus Company signed a noncancellable contract to purchase 500 sacks of rice at P900 per sack with
delivery to be made in 2022. On December 31, 2021, the price of rice had fallen to P850 per sack. On May 9, 2022,
Tartarus Company accepts delivery of rice when the price is P880 per sack.

32) In December 31, 2021 income statement, what amount of loss on purchase commitment should be recognized?
A. 15,000 B. 10,000 C. 25,000 D. 0
33) What amount of recovery of loss on purchase commitment should Tartarus recognize on May 9, 2022?
A. 10,000 B. 15,000 C. 25,000 D. 0
34) What amount of purchases should be recorded on May 9, 2022?
A. 450,000 B. 440,000 C. 425,000 D. 0

35) In examining the December 31, 2021 financial statements of Hemera Company, the following errors were discovered:
• Ending inventory was overstated by P10,000.
• Beginning inventory was understated by P4,000.
• P100,000 worth of merchandise was purchased and received in 2021 and included in inventory. The purchase was
recorded in 2022.
• The net income reported in 2021 income statement before adjustment for the above items is P600,000.

What is the adjusted net income for the year ended December 31, 2021?
A. 494,000 B. 490,000 C. 586,000 D. 486,000

FAR_03: INVENORIES PAGE 6 OF 10

 SELF-TEST
1) Mitchie Company reported the December 31, 2023 inventory at P3,000,000. The entity revealed the following
transactions:
• Goods shipped to Mitchie FOB destination on December 26, 2023 were received on January 2, 2024. The invoice
cost of P350,000 is included in the preliminary inventory balance.

• At year-end, Mitchie held P250,000 of merchandise on consignment from another entity. This merchandise is
included in the preliminary inventory balance.

• On December 29, 2023 merchandise costing P250,000 was shipped to a customer FOB shipping point and arrived
at the customer location on January 3, 2024. The merchandise is included in the preliminary inventory balance.

What amount should be reported as inventory on December 31, 2023?

A. 2,400,000 B. 2,500,000 C. 2,150,000 D. 2,750,000

Use the following information for the next two (2) questions:
In testing the sales cut-off for the SAN FERNANDO Co. in connection with an audit for the year ended October 31, 2024,
you find the following information. A physical inventory was taken as of the close of business on October 31, 2024; all
customers are within a three-day area of the SAN FERNANDO Co. plant.

The unadjusted balances for Sales and Inventories are P700,000 and P150,000, respectively.
Invoice Number FOB Terms Date Shipped Date Recorded Sales Cost
100 Destination 10/20 10/31 P1,000 900
101 Destination 10/31 11/02 2,500 2,000
102 Destination 10/31 10/31 1,800 1,200
103 Shipping pt. 10/31 10/29 4,200 3,100
104 Shipping pt. 10/31 11/02 9,200 8,000
105 Shipping pt. 11/02 10/23 6,500 5,100
106 Shipping pt. 11/05 11/06 7,500 5,800
107 Destination 10/25 11/03 3,900 2,000
108 Shipping pt. 11/04 10/31 8,600 8,200
109 Destination 11/05 11/02 5,000 4,000

1) The amount of sales for the month of October is

A. 696,200 B. 699,800 C. 700,900 D. 704,800
2) The amount of inventory at the month of October is
A. 152,000 B. 153,200 C. 157,200 D. 165,400

3) Super Company had the following information in relation to its inventory accounts in 2020
Increase in Raw-materials P 14,000
Increase in Work in process 24,000
Decrease in Finished goods 33,500
Likewise, the following costs & expenses were incurred in 2020
Raw materials purchased 150,000
Direct labor cost 60,000
Indirect factory labor 30,000
Taxes and depreciation on factory building 10,000
Taxes and depreciation on sales room and office 7,500
Freight-out 3,000
Freight-in 4,000
Sales salaries 20,000
Office salaries 12,000
Utilities (60% applicable to factory, 20% to sales room, and 20% to office) 25,000
Total manufacturing cost is
A. 283,000 B. 255,000 C. 251,000 D. 240,000

4) Elrond Company began operations in 2020. During the first two years of operations, Elrond made undiscovered errors
in taking its year-end inventories that overstated 2020 ending inventory by P50,000 and overstated 2021 ending
inventory by P40,000. The combined effect of these errors on reported income is
2020 2021 2022
A. overstated P50,000 overstated P90,000 understated P40,000
B. overstated P50,000 overstated P40,000 not affected
C. understated P50,000 understated P90,000 not affected
D. overstated P50,000 understated P10,000 understated P40,000



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 5) On December 31, 2024, Punch Company reported inventory per physical count at P1,500,000. The entity revealed the
following information:
• Goods in transit by Dec. 31, 2024 purchased FOB shipping point, total price P100,000 including freight of P20,000.
• Goods held on consignment included in the count, costing P30,000.
• Goods in transit by December 31, 2024 sold FOB destination, costing P45,000 including freight of P5,0000.
• Goods purchased in transit by December 31, 2024, “Ex-ship”, costing P50,000.
• Goods purchased in transit by December 31, 2024, “Cost, Insurance, Freight”, costing P75,000.

What is the correct amount of inventory on December 31, 2024?

A. 1,765,000 B. 1,735,000 C. 1,715,000 D. 1,685,000

Use the following information for the next two (2) questions:
The following information has been taken from the cost records of Poseidon Company:
Total material used in production 326
Total manufacturing costs charged to production during the year (includes direct material, direct labor, and
overhead equal to 60% of direct labor cost) 686
Cost of goods available for sale 826
Selling and administrative expenses 25
5

Inventories Beginning Ending

Raw materials 75 85
Work in process 80 30
Finished goods 90 110
6) How much is the factory overhead charged to production during the year?
A. 225 B. 135 C. 360 D. 216
7) How much is the cost of goods sold for the current year?
A. 736 B. 716 C. 766 D. 826
8) How much is the total cost of inventories at the end of the production?
A. 686 B. 225 C. 766 D. 826

9) Presented below is a list of items that may or may not reported as inventory in Seduco Company’s Dec. 31, 2021:
Goods out on consignment at another company’s store 800,000
Goods purchased in transit, Free Alongside, including delivery cost alongside the vessel of P2,000 but
excluding the cost of shipment of P1,000 80,000
Goods purchased FOB shipping point that are in transit at December 31 120,000
Goods purchased FOB destination that are in transit at December 31 200,000
Goods sold and delivered on Dec. 20. The goods were included in the inventory because the sale was
accompanied by a purchase agreement requiring Seduco to buy back the inventory on February 2022 500,000
Goods sold FOB shipping point that are in transit December 31 120,000
Freight charges on goods purchased, FOB shipping point 80,000
Factory labor costs incurred on goods still unsold 50,000
Interest cost incurred for inventories that are routinely manufactured 40,000
Cost incurred to advertise goods held for resale 20,000
Materials on hand not yet placed into production 350,000
Office supplies 10,000
Raw materials on which the company has started production, but which are not completely processed 280,000
Factory supplies 20,000
Goods held on consignment from another company 450,000
Costs identified with units completed but not yet sold 260,000
Goods sold FOB destination that are in transit at December 31 40,000
Temporary investment in shares and bonds that will be resold in the near future 500,000
How much of these items would typically be reported as inventory in the financial statements?
A. 2,079,000 B. 2,580,000 C. 2,579,000 D. 3,079,000

10) An analysis of the ending inventory of Sun Corp. on December 31, 2023 disclosed the inclusion of the following items:
Merchandise in transit purchased on terms:
CIF 330,000
Ex-ship 200,000
Merchandise out on consignment at sales price (including mark up of 30% on cost) 390,000
Merchandise sent to customer for approval (cost of goods, P64,000) 84,000
Merchandise held on consignment 70,000
What is the reduction of the inventory account on December 31, 2023?
A. 710,000 B. 380,000 C. 407,000 D. 444,000

FAR_03: INVENORIES PAGE 8 OF 10

 11) During the current year, Kate Company reported increase in raw materials inventory P150,000, decrease in goods in
process P200,000, decrease in finished goods P350,000, raw materials purchased P4,300,000, direct labor incurred
P2,000,000, factory overhead P3,000,000, freight out P450,000, and freight in P250,000. What amount was reported
as cost of goods sold for the current year?
A. 9,700,000 B. 9,250,000 C. 9,550,000 D. 9,950,000

12) On December 31, 2017, Alaska Company’s ending inventory was P3,000,000 at cost and the allowance for inventory
writedown before any adjustment was P550,000. The entity provided the following information on December 31, 2017:
Product Cost Replacement Cost Sales Price NRV Normal profit
A 800,000 900,000 1,200,000 550,000 250,000
B 1,000,000 1,200,000 1,300,000 1,100,000 150,000
C 700,000 1,000,000 1,250,000 950,000 300,000
D 500,000 600,000 1,000,000 350,000 300,000
What amount of gain or loss is included in cost of goods sold for 2017?
A. 150,000 gain B. 150,000 loss C. 400,000 loss D. 400,000 gain

Use the following information for the next two (2) questions:
At year-end, Eagles Company reported ending inventory at P15,000,000 and the allowance for inventory writedown before
any adjustment at P800,000.
Product 1 Product 2 Product 3 Product 4
Historical cost 4,000,000 5,000,000 3,500,000 2,500,000
Replacement cost 4,500,000 6,000,000 5,000,000 3,000,000
Sales price 6,000,000 6,500,000 6,250,000 5,000,000
Net realizable value 2,750,000 5,500,000 4,750,000 1,750,000
Normal profit 1,250,000 750,000 1,500,000 1,500,000
13) What amount of loss on inventory writedown should be included in cost of goods sold?
A. 2,000,000 B. 2,800,000 C. 1,200,000 D. 1,250,000
14) What is the measurement of inventory in the statement of financial position?
A. 15,000,000 B. 13,000,000 C. 14,750,000 D. 18,750,000

Use the following information for the next two (2) questions:
During January 2022, IIAP Company recorded the following information pertaining to its inventory:
Units Unit cost Total cost
January 1 balance 20,000 10 200,000
January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchase 14,000 15 210,000
January 31 sales 10,000
15) How much is the cost of inventory should IIAP report in its January 31, 2022 balance sheet assuming the company
maintains perpetual inventory records?
A. 240,000 B. 260,000 C. 280,000 D. 300,000
16) Using FIFO method, what amount of inventory should IIAP report in its January 31, 2022 balance sheet?
A. 240,000 B. 260,000 C. 280,000 D. 282,000

Use the following information for the next three (3) questions:
Snoopdog Company’s purchases in its first four months of operations were as follows:
First Quarter Second Quarter Third Quarter Fourth Quarter
Number of units 3,500 9,200 6,400 3,700
Cost 27,300 77,280 64,960 36,815
Inventory balance at the end of the year using LIFO – periodic is valued at P39,060.

17) The inventory balance under FIFO perpetual is

A. 39,060 B. 44,348 C. 47,660 D. 48,995
18) The cost of sales under the Weighted-Average cost flow assumption is
A. 167,295 B. 162,006 C. 157,360 D. 158,695
19) Assuming that the percentage of the total goods sold were 10% in first quarter; 45% in second quarter; 20% in third
quarter and 25% in December, the ending inventory to be reported under the Moving-Average cost flow assumption is
A. 39,060 B. 44,348 C. 47,660 D. 48,995

FAR_03: INVENORIES PAGE 9 OF 10

Use the following information for the next two (2) questions:
Mari used the conservative retail inventory method. At year-end, the following information relating to the inventory was
gathered:
Cost Retail
Beginning inventory 200,000 450,000
Purchases 3,000,000 4,350,000
Purchase discounts 50,000
Freight in 165,000
Markups 300,000
Markdowns 400,000
Sales 4,400,000
Sales return 100,000
Sales discount 50,000
Sales allowance 30,000
20) What is the estimated cost of the ending inventory?
A. 400,000 B. 280,000 C. 260,000 D. 315,000
21) What is the estimated cost of goods sold?
A. 3,055,000 B. 2,795,000 C. 4,300,000 D. 3,315,000

22) BACOLOR Supplies, Inc. lost most of its inventory in a fire in December just before the year-end physical inventory was
taken. Corporate records disclosed the following: beginning inventory, P1,207,000; purchases, P3,600,000; purchase
returns, P225,000; sales, P5,250,000; sales returns, P120,000. BACOLOR Company’s markup on cost has averaged
25% during the past few years. Merchandise with a selling price of P100,000 remained undamaged after the fire, and
the damaged merchandise has a salvage value of P56,200. BACOLOR Company does not carry fire insurance on its
inventory. It is estimated that the year-end inventory would have been subject to a normal 5% write-down for
obsolescence. The estimated fire loss incurred by BACOLOR Supplies is
A. 341,800 B. 324,710 C. 321,900 D. 302,900

23) Zomino Corporation had the following amounts under retail inventory method:
Beginning inventory – cost 3,600 Purchases – cost 120,000
Purchase returns – cost 6,000 Net markups 18,000
Abnormal shortage – cost 4,000 Net markdowns 2,800
Sales 72,000 Sales returns 1,800
Sales discounts 3,000 Abnormal shortage – retail 5,500
Purchase returns – retails 7,500 Purchases – retail 200,000
Purchase allowance 1,000 Beginning inventory – retail 5,000

How much is the estimated cost of inventory under FIFO?

A. 74,446 B. 73,857 C. 75,474 D. 137,000

Use the following information for the next two (2) questions:
The records of Akon Company report the following data for the month of April:
Cost Retail
Beginning inventory, 240,000 500,000
Purchases 800,000 1,540,000
Freight-in 70,000
Purchase returns 15,000 28,800
Purchase discount 25,000
Transfer in cost 110,000 215,600
Transfer out costs 60,000 117,600
Freight-out 35,000
Mark ups 280,000
Mark up cancellations 90,000
Markdowns 105,000
Markdown cancellations 40,000
Sales 1,200,000
Sales returns 55,800
Sales discount 20,000
Employee discounts 150,000
Losses due to shrinkage 80,000
24) The estimated inventory at cost under the average retail method is
A. 418,928 B. 420,631 C. 431,116 D. 436,397
25) The cost of sales under the FIFO retail method is
A. 683,603 B. 688,884 C. 699,369 D. 701,072
END OF FAR_03


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