Professional Documents
Culture Documents
Chapter 7
Inventories
NAME: Date:
Professor: Section: Score:
LONG QUIZ
1. A VAT-registered entity purchases inventory. The invoice price of the inventory includes payment
for VAT. The entity should
a. include the VAT paid as part of the cost of the inventory.
b. exclude the VAT paid and record it under the VAT payable account.
c. exclude the VAT paid and record it under the Input VAT account.
d. ignore the VAT payment and disclose it only in the notes to the financial statements.
3. On whose books should the cost of the inventory appear at the December 31, 2004 balance sheet
date?
a. Elway Corporation
b. Howell Corporation
c. Norwalk Bank
d. Howell Corporation, with Elway making appropriate note disclosure of the transaction
4. Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in
physical inventory but did not record the transaction. The effect of this on its financial statements
for January 31 would be
a. net income or profit, current assets, and retained earnings were overstated.
b. net income or profit was correct and current assets were understated.
c. net income or profit and current assets were overstated and current liabilities were understated.
d. net income or profit, current assets, and retained earnings were understated.
5. Dawn Co. purchased goods with invoice price of ₱3,000 on account on December 27, 20x1. The
related shipping costs amounted to ₱50. The seller shipped the goods on December 31, 20x1. Dawn
Co. received the goods on January 2, 20x2 and settled the account on January 5, 20x2. How much is
the net cash payment to the supplier if the terms of the shipment are FOB destination, freight collect?
a. 3,050 b. 3,000 c. 2,950 d. 0
Page |2
9. ABC Co. uses the periodic inventory system. In the current year, ABC’s ending inventory is
understated by ₱20,000. Which of the following statements is correct?
a. ABC’s cost of goods sold is understated by ₱20,000.
b. ABC’s gross income is understated by ₱20,000.
c. ABC’s net purchases are understated by ₱20,000.
d. ABC’s profit is overstated by ₱20,000.
10. On January 1, 20x1 Plaka Co. acquired goods for sale in the ordinary course of business for
₱250,000, excluding ₱5,000 refundable purchase taxes. The supplier usually sells goods on 30 days’
Page |3
interest-free credit. However, as a special promotion, the purchase agreement for these goods
provided for payment to be made in full on December 31, 20x1. Transport charges of ₱2,000 were
paid on January 1, 20x1. An appropriate discount rate is 10 per cent per year. How much is the
initial cost of the inventories?
a. 229,273 b. 224,727 c. 250,000 d. 257,000
11. Ciano Co. acquired a tract of land for ₱2,000,000. The land was developed and subdivided into
residential lots at an additional cost of ₱200,000. Although the subdivided lots are relatively equal
in sizes, they were offered at different sales prices due to differences in terrain. Information on the
subdivided lots is shown below:
Lot group No. of lots Price per lot
A 4 480,000
B 10 240,000
C 15 192,000
During the year, 2 lots from the A group, 3 lots from the B group and 12 lots from the C group were
sold. How much gross income is recognized during the year?
a. 2,766,666 b. 2,783,333 c. 2,860,000 d. 2,877,333
12. How much are the ending inventory and cost of goods sold under the FIFO – periodic cost flow
formula?
Ending inventory Cost of goods sold
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804
13. How much are the ending inventory and cost of goods sold under the FIFO – perpetual cost flow
formula?
Ending inventory Cost of goods sold
a. 219,840 122,368
b. 112,341 229,867
Page |4
c. 122,368 219,840
d. 122,386 219,804
14. How much are the ending inventory and cost of goods sold under the weighted average – periodic
cost flow formula?
Ending inventory Cost of goods sold
a. 229,840 112,160
b. 126,468 215,740
c. 120,080 222,128
d. 120,072 222,153
15. How much are the ending inventory and cost of goods sold under the weighted average –
perpetual cost flow formula?
Ending inventory Cost of goods sold
a. 121,794 220,414
b. 122,468 219,740
c. 122,017 220,191
d. 123,384 218,824
16. Vacation Co. buys and sells products A & B. The following unit costs are available for the inventory
as of December 31, 20x1: (All costs are borne by Vacation Co.)
A B
Number of units 2,000 3,000
Purchase cost per unit ₱125 ₱190
Delivery cost from supplier 10 30
Estimated selling price 150 250
Selling costs 22 28
General and administrative 15 18
How much total inventory shall be reported in Vacation Co.’s 20x1 financial statements?
a. 916,000 b. 930,000 c. 936,000 d. 696,000
17. On January 1, 20x1, Shock Co. signed a three year, noncancelable purchase contract that allows
Shock Co. to purchase up to 12,000 units of a microchip annually from Aha! Co. at ₱15 per unit. The
guaranteed minimum annual purchase is 3,000 units. At year-end, it was found out that the goods
are obsolete. Shock Co. had 4,000 units of this inventory at December 31, 20x1, and believes these
parts can be sold as scrap for ₱5 per unit. How much is the loss on purchase commitment to be
recognized on December 31, 20x1?
a. 70,000 b. 100,000 c. 60,000 d. 0
18. The raw materials inventory of Mug Co. on December 31, 20x1 have a cost of ₱20,000 and an
estimated net realizable value of ₱18,000. Information on the finished goods is as follows:
Cost……………………………………….₱250,000
NRV…………………….…………………₱280,000