INVENTORY VALUATION

Marsh Company had 150,000 units of product A on hand at January 1,2006,

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.
1. The cost of the inventory at January 31 under the FIFO method is
a. 5,850,000
b. 5,550,000
c. 5,350,000
d. 5,250,00

ABC Company provided the following net income and inventory for 2005 and
2006.
2005 2006
Net income using LIFO 2,750,000 3,000,000
Year-end inventory – FIFO 1,400,000 2,000,000
Year-end inventory – LIFO 900,000 1,600,00
2. What is the net income for the year 2006 using the FIFO cost flow?
a. 2,900,000
b. 2,600,000
c. 3,500,000
d. 3,100,000

On April 1, 2006 GB Company had 6,000 units of merchandise on hand that

cost P120 per unit. During the month, GB had the following entries 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 purchases
29 Sold on account 16,000 units at P200 per unit
GB Company uses a perpetual inventory system and a FIFO cost flow.
3. What is the cost of goods sold for April 2006?
a. 2,120,000
b. 2,200,000
c. 2,144,000
d. 2,080,000

Micronesia Company started its operations in 2004. The following data are
abstracted from the company’s purchases and sales records:
2004 2005 2006
Number of units purchased 160,000 155,000 135,000
Number of units sold 100,000 145,000 130,000
Unit cost 4.00 5.00 6.00
Sales revenue 800,000 1,200,000 1,300,000
4. The inventory value is calculated in terms of FIFO. How much is gross
profit for the year 2006?
a. 590,000
b. 520,000
c. 530,000
d. 470,000

The inventory card of Lane Company as at February 28 is as follows:

Purchases Units Balance
Price Units Used Units
Jan. 10 100 20,000 20,000
31 10,000 30,000
Feb. 8 110 30,000 40,000

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 9 Returns from factory (Jan. 10 lot (1,000) 41,000
28 11,000 30,000
5. Using the weighted average method, the inventory cost as at February 28
is
a. 3,180,000
b. 3,150,000
c. 3,120,000
d. 3,300,000

Anders Company uses the moving-average method to determine the cost of

its inventory During January of the current year, Anders recorded the
following information pertaining to its inventory:
Units Unit cost Total cost
Balance on 1/1 40,000 50 2,000,000
Sold on 1/17 35,000
Purchased on 1/28 20,000 80 1,600,000
6. What amount inventory should Anders report in its January 31 balance
sheet?
A 2,000,000
b. 1,850,000
c. 1,625,000
d. 1,500,000

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 1/1 10,000 100 1,000,000 10,000
Purchases on 1/17 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
7. Under the moving average method, what amount should Metro report as
inventory at January 31?
a. 2,640,000
b. 3,225,000
c. 3,300,000
d. 3,900,000

8. Under the FIFO method, what amount should Metro report as inventory at
January 31?
a. 1,300,000
b. 2,700,000
c. 3,900,000
d. 4,100,000

Frey Company recorded the following data pertaining to raw materials 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 Purchases 12,000 240 16,000
9. The moving-average unit cost of Y inventory at January 31 is
a. 220
b. 224
c. 230
d. 240

The following information was taken from the inventory records of Fairie
Company for January 2006:
Units Unit cost Total cost

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 Balances at January 1 50,000 8.024 401,200
Purchases:
January 10 20,000 8.500 170,000
January 25 48,000 8.750 420,000
Sales:
January 12 30,000
January 30 53,000
Fairie Company does not maintain perpetual inventory records.
10. What should be the inventory on January 31, using the weighted average
method?
a. 294,000
b. 294,700
c. 297,850
d. 301,880

Elixir Company bought a 10-hectare land in Novaliches to be improved,

subdivision into lots and eventually sold. Purchases 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 Total clearing cost
lot
A 10 100,000 None
B 20 80,000 100,000
C 40 70,000 300,000
D 50 60,000 800,000
11. Purchases and improvement costs allocated for Class B lots under the
relative sales value method should be
a. 1,176,000
b. 1,220,000
c. 1,276,000
d. 1,700,000

On July 1, 2006, Casa Company purchased a tract of land for P12,000,000.

Casa incurred additional cost of P3,000,000 during the remainder of 2006 in
preparing the land for sale. The tract was subdivided into residential lots as
follows:
Lot class Number of lots Sales price per lot
A 100 240,000
B 100 160,000
C 200 100,000
12. Using the relative sales value method, what amount of cost should be
allocated to Class A lots?
a. 3,000,000
b. 3,750,000
c. 6,000,000
d. 7,200,000

The following information pertains to an item in the inventory of Bay

Company at year end:
Cost 1,500
Replacement cost 600
Net realizable value 1,200
Net realizable value less normal profit 840
13. Under the lower of cost or market rule, how much is the year-end
inventory value of this item?
a. 1,200
b. 840
c. 660
d. 600

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 Moss Company has determined its December 31, 2006, inventory on a FIFO
basis to be P4,000,000. Information pertaining to that inventory follows:
Estimated selling price 4,080,000
Estimated cost of disposal 200,000
Normal profit margin 600,000
Current replacement cost 3,600,0000
Moss records losses that result from applying the lower of cost or market rule.
14. At December 31, 2006, what should be the net carrying value of Moss’
inventory?
a. 4,000,000
b. 3,880,000
c. 3,600,000
d. 3,280,000

Based on a physical inventory taken on December 31, 2006, Chewy Company

determined its chocolate inventory on a FIFO basis at P5,200,000 with a
replacement cost of P4,000,000. Chewy estimated that, after further
processing costs of P2,400,000, the chocolate could be sold as finished candy
bars for P8,000,000. Chewy’s normal profit margin is 10% of sales.
15. Under the lower of cost or market rule, what amount should Chewy report
s chocolate inventory in its December 31, 2006 balance sheet?
a. 5,600,000
b. 4,000,000
c. 5,200,000
d. 4,800,000

Greece Company provided the following data for the current year:
Inventory – January
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31;
Cost 4,000,000
Net realizable value 3,700,000
16. Under the LCM rule, what should be reported as cost of goods sold?
a. 7,000,000
b. 7,100,000
c. 7,300,000
d. 7,200,000

On December 31, 2006, Dos Company has outstanding purchases

commitments for 50,000 gallons at P20 per gallon of raw material to be used
in its manufacturing process. The company prices its raw materials inventory
at cost or market whichever is lower.
It is determined that the market price of the raw material has declined to P17
per gallon on December 31, 2006 and it is expected to decline further to P15
in the first quarter of 2007.
17. How much is the loss on purchase commitment that should be recognized
in 2006?
a. 850,000
b. 150,000
c. 250,000
d. 0

On January 1, 2006, Card Corporation signed a three-year noncancelable

purchase contract, which allows Card to purchase up to 5,000 units of a
computer part annually from Hart Supply Company at P100 per unit and
guarantee a minimum annual purchase of 1,000 units. During 2006, the part
unexpectedly became obsolete. Card had 2,500 units of this inventory at
December 31, 2006, and believes these parts can be sold as scrap for P20
per unit.

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 18. What amount of probable loss from the purchase commitment should
Card report in its 2006 income statement?
a. 240,000
b. 200,000
c. 160,000
d. 80,000

On November 15, 2006 Damascus Company entered into a commitment to

purchase 100,000 barrels of aviation fuel for P55 per barrel on March 31,
2007. the company entered into this purchase commitment to protect itself
against the volatility in the aviation fuel market. By December 31, 2006 the
purchase price of aviation fuel had fallen to P40 per barrel. However, by
March 2007, when the company took delivery of these 100,000 barrels the
price of aviation fuel had risen to P60 per barrel.
19. How much should be recognized as gain on purchase commitment for the
year 2007?
a. 1,500,000
b. 2,000,000
c. 500,000
d. 0

Altis Company sells one product, which it purchases from various suppliers.
The trial balance at December 31, 2006, included the following accounts:
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 2006 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
150,00 10,500,000
0

Altis’ accounting policy is to report inventory in its financial statements at the

lower of cost or market, applied to total inventory. Cost is determined under
the first-in, first-out method.
Altis has determined that, at December 31, 2006, the replacement cost of its
inventory was P70 per unit and the net realizable value was P72 per unit.
The normal profit margin is P10 per unit.
20. What should Altis report as cost of goods sold for the year 2006?
a. 6,500,000
b. 6,300,000
c. 6,700,000
d. 6,900,000

END

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