QUIZ 3 - INTERMEDIATE ACCOUNTING 2 5.

Which of the following is not to be considered in the

computation of net realizable value?
1. The average retail method is based on the assumption
that the: a. Estimated cost to complete
b. Estimated selling price
a. Ratio of gross margin to sales is approximately c. Normal profit margin
the same each period d. Estimated selling expense
b. Gross margin percentage applicable to ending
inventory and to the good sold during the period 6. The amount of any write-down of inventories to net
is the same realizable value should be:
c. Beginning inventory and the cost of goods sold
contain the same proportion of high cost and low a. Recognized as an expense in the period the
cost-ratio goods. write-down occurs
d. Ratio of cost to retail charges at a constant rate. b. Presented under other comprehensive income
c. Presented as other income or other operating
2. Which of the following must be included in the items expenses in profit or loss under the direct
of inventories of the buyer? method
d. Absorbed by cost of goods sold under the
a. Goods in transit which were purchased FOB allowance method
shipping point
b. Goods received from another entity under 7. Which of the following relating to inventories is not a
consignment agreement required disclosure in the entity’s financial statements?
c. Goods held by the customer on approval
d. Goods in transit which were purchased FOB a. Amount of inventories pledged as loan security
destination b. Amount of inventories recognized as expense
during the period
3. Which of the following is not true regarding inventory c. Cost formula used
accounting system? d. Volume of inventories purchased during the
period
a. Adjusting entry is necessary to set up ending
inventory under the perpetual inventory system 8. A consignee paid the freight cost for goods shipped
b. A perpetual system maintains a continuous from a consignor. The freight cost is to be deducted from
record of the movement of the items in its the consignee's payment to the consignor when the
inventory. consigned goods are sold. Until the consignee sells the
c. The periodic inventory system is appropriate for goods, the freight cost should be included in the
relatively low value and numerous inventory consignee's:
items
d. A periodic inventory system does not maintain a a. Freight out
continuous record of the physical quantities or b. Cost of goods sold
costs of inventory on hand. c. Distribution cost
d. Accounts receivable
4. At what amount should the inventories be presented in
the statement of financial position at the reporting date? 9. Which of the following shows the correct
measurement of inventories?
a. Cost
b. Lower of cost and net realizable value a. Under the direct method, the beginning and
c. Net realizable value ending inventories are measured at lower of cost
d. Higher of cost and net realizable value and NRV for the purpose of computing the cost
of goods sold.
 b. Under the allowance method, the beginning and 12. Which of the ff. is not true under the perpetual
ending inventories are measured at lower of cost inventory system?
and NRV for the purpose of computing the CGS.
c. Under the allowance method, the beginning and a. Purchases are recorded as a debit to the
ending inventories are measured at NRV for the inventory account
purpose of computing the CGS b. After a physical inventory count, inventory is
d. Under the direct method, the beginning and credited for any missing inventory
ending inventories are measured at cost for the c. Purchase returns are recorded by debiting
purpose of computing the CGS. accounts payable and crediting purchase returns
and allowances
10. The inventory records of HHH Company disclosed d. The entry to record a sale includes a debit to cost
the following data for the quarter ending March 31, of goods sold and a credit to inventory
2021:
13. Eliseo Company began its operations on Jan. 1, 2022
Beginning inventory - at cost P 550,000.000 and adopted the first-in, first out (FIFO) method of
Beginning inventory - at retail value 825,000.00 inventory costing.
Purchases - at cost 1,200,000.00
The following data refer to the years 2022 to 2024.
Purchases - at retail value 1,740,000.00
Purchase returns - at cost 100,000.00
2022 2023 2024
Purchase returns - at retail value 140,000.00
Sales 4,500,000 6,000,000 7,200,000
Purchase discounts 60,000.00
Cost of goods sold 2.250,000 3,000,000 3,600,000
Purchase allowances 75,000.00
Gross profit 2,250,000 3,000,000 3,600,000
Operating expenses 1,200,000 1,350,000 1,500,000
Sales amounted to P1,200,000, sales return - P50,000.00,
sales discount - P55,000.00, sales allowances - Profit 1,050,000 1,650,000 2,100,000
P60,000.00; markdowns - P120,000.00.
Eliseo Company is considering changing its inventory
How much is the estimated ending inventory at cost costing to the average costing formula. A comparison of
using the FIFO retail method? inventory figures using FIFO and Average was prepared
by Mr. Eliseo, the chief accountant.
a. 834,771.00
b. 759,182.00 Ending Inventory Average FIFO
c. 828,040.00 2022 405,000 630,000
d. 753,060.00 2023 450,000 750,000
2024 570,000 975,000
11. Which of the following should not be reported as an
inventory within the coverage of IAS 2? What amount of profit should be reported under average
for the year 2023?
a. Agricultural produce for sale in the ordinary
course of business, after being harvested from its a. 1,725,000
biological assets b. 825,000
b. Machinery acquired by a manufacturing entity c. 1,575,000
for use in the production process d. 1,275,000
c. Goods still in process of production, for sale in
the ordinary course of business 14. You examined the records of Eli Company for the
d. Materials and supplies awaiting use in the year ended, Dec. 31, 2022. You discovered the following
production process errors:
 ● Ending inventory was overstated by P15,000 b. 544,440.00
● Beginning inventory was understated by P6,000 c. 509,640.00
● Goods costing P150,000 was received towards d. 437,500.00
the end of 2022 and included in the inventory.
Purchases was recorded in 2023 when payment 17. For the purpose of computing the cost of goods sold
for the account was made. using the gross profit method, which of the following
● Profit for the year (before any adjustments should be deducted from sales?
above) was P900,000
a. Sales return, sales allowances, and sales
What is adjusted profit for the year ended Dec. 31, discounts
2022? b. Sales return
c. Sales return and sales allowances
a. 741,000 d. Sales allowances and sales discounts
b. 1,071,000
c. 1,029,000 18. GGG Company is using weighted average method
d. 729,000 for the costing of its inventories. Information related to
its inventories, as well as the purchases and sales, are as
15. Under what costing formula does the flow of follow:
recorded costs match the physical flow of goods?
Date Transaction Qty Unit Cost Selling
a. Moving average method Price /
b. Specific identification method Unit
c. Weighted average method Jan. 1 2,000 ?
d. First-in First-out method Feb. 1 Purchases 4,000 52.00
Feb. 7 Purchases 3,000 52.50
16. In the process of preparing financial statements of
Apr. 3 Sales 5,000 75.00
FFF Company for the year ended 2021, management
May 3 Purchases 5,000 54.00
collated the following information related to its
inventory: Jul. 30 Sales 8,000 80.00

At Dec. 31, 2021, the company’s inventory has a cost of

Date Transaction Qty Unit Cost Selling
Price / P53,500.00. Its estimated selling price decreased to
Unit P60.00 and selling costs remains at 15%. On Jan. 1,
Jan. 1 2,000 100.00 2021, the allowance to reduce inventory to NRV had a
balance of P5,000.00
Jan. 15 Purchases 10,000 120.00
Mar. 27 Purchases 3,500 125.00
How much is the inventory to be presented in the
May 5 Sales 6,000 150.00 Statement of Financial Position as of Dec. 31, 2020?
Jun. 23 Sales 3,000 180.00
Sept. 30 Purchases 5,000 140.00 a. 53,500.00
Nov. 3 Sales 3,000 185.00 b. 108,500.00
c. 51,000.00
The company is applying average basis for the costing of d. 113,500.00
its inventories.
19. In the process of preparing financial statements of
If the company maintains a periodic inventory system, FFF Company for the year ended 2021, management
how much is the gross profit? collated the following information related to its
inventory:
a. 595,000.00
 Date Transaction Qty Unit Cost Selling
Price / a. 1,575,000
Unit b. 1,725,000
Jan. 1 2,000 100.00 c. 825,000
Jan. 15 Purchases 10,000 120.00 d. 1,275,000
Mar. 27 Purchases 3,500 125.00
21. Which of the following is not true under the
May 5 Sales 6,000 150.00
weighted average costing formula?
Jun. 23 Sales 3,000 180.00
Sept. 30 Purchases 5,000 140.00 a. Moving average method is appropriate for
Nov. 3 Sales 3,000 185.00 perpetual system
b. Weighted average method is appropriate for
The company is applying average basis for the costing of periodic system
its inventories. c. Weighted average method requires a
computation of new unit cost after each purchase
How much is the cost of the ending inventory under and subsequent issues are priced at the latest
perpetual inventory system? average unit cost
d. The method considers goods to be
a. 1,052,130.00 undistinguishable
b. 1,086,940.00
c. 980,000.00 22. GGG Company is using weighted average method
d. 1,137,500.00 for the costing of its inventories. Information related to
its inventories, as well as the purchases and sales, are as
20. Eliseo Company began its operations on Jan. 1, 2022 follow:
and adopted the first-in, first out (FIFO) method of
inventory costing. Date Transaction Qty Unit Cost Selling
Price /
The following data refer to the years 2022 to 2024. Unit
Jan. 1 2,000 ?
2022 2023 2024 Feb. 1 Purchases 4,000 52.00
Sales 4,500,000 6,000,000 7,200,000 Feb. 7 Purchases 3,000 52.50
Cost of goods sold 2.250,000 3,000,000 3,600,000 Apr. 3 Sales 5,000 75.00
Gross profit 2,250,000 3,000,000 3,600,000 May 3 Purchases 5,000 54.00
Operating expenses 1,200,000 1,350,000 1,500,000 Jul. 30 Sales 8,000 80.00
Profit 1,050,000 1,650,000 2,100,000
At Dec. 31, 2021, the company’s inventory has a cost of
Eliseo Company is considering changing its inventory P53,500.00. Its estimated selling price decreased to
costing to the average costing formula. A comparison of P60.00 and selling costs remains at 15%. On Jan. 1,
inventory figures using FIFO and Average was prepared 2021, the allowance to reduce inventory to NRV had a
by Mr. Eliseo, the chief accountant. balance of P5,000.00

Ending Inventory Average FIFO How much is the cost of goods sold for the year?
2022 405,000 630,000
2023 450,000 750,000 a. 693,000.00
b. 635,500.00
2024 570,000 975,000
c. 695,500.00
d. 698,000.00
What amount of profit should be reported under average
for the year 2022?
23. Which of the following should be part of the cost of ● Goods held for others for storage with a cost of
inventories? P200,000.00.
● Goods customarily manufactured with a cost of
a. Rental fee for the office space P250,000.00. The goods were already completed
b. Salary of the agents and sales personnel but shipped to the buyer on January 3, 2022.
c. Storage costs during the production stage
d. Abnormal amounts if wasted production How much is correct inventory as of December 31,
resources 2031?

24. III Company is engaged in trading sanitary products. a. 4,550,000.00

The following information transactions and other b. 3,800,000.00
information are available for the year ended December c. 4,050,000.00
31, 2021: d. 4,800,000.00

Inventory, beg - P250,000.00 26. On Nov. 12, 2022, Panganiban Company entered
Purchases, including in transit goods - P6,540,000.00 into a non-cancelable purchase commitment with Eliseo
Purchase returns - P120,000.00 Company, an unrelated entity. The contract requires
Freight-in - P150.000.00 Panganiban Company to purchase 15,000 units of
Sales - P8,000,000.00 inventory at a contract price of P310 per unit on Mar. 30,
Sales allowances - P130,000.00 2023.
Sales discount - P80,000.00
Sales return - P125,000.00 The following data relate to the purchase commitment:

As of December 31, 2021, purchases costing P90,000 Date Market Price

were in transit, FOB Shipping Point: P65,000 were in the Dec. 31, 2022 270 per unit
hands of the agents; and P75,000 were out on
Mar. 30, 2023 300 per unit
consignment.
What amount of recovery from purchase commitment
How much is the ending inventory that is physically
should Panganiban Company recognize on Mar. 30,
present in the warehouse of the Company, assuming that
2023?
the Company sells its products at 25% above cost?
a. 450,000
a. 750,000.00
b. 0
b. 290,000.00
c. 600,000
c. 122,000.00
d. 150,000
d. 582,000.00
27. AAA Company is preparing their financial
25. BBB Company conducted an inventory count of all
statements for the year ended December 31, 2021 and as
the items found in its warehouse. Inventory as of that
of the said date, their inventory amounts to
date amounted to P5,500,000.00 and includes the
P4.250,000.00 based on physical count. All items found
following items:
present in the warehouse are included in the count. The
following information are gathered relating to certain
● Goods manufactured according to customer
inventory transactions:
specifications with a cost of P500,000.00. The
goods were already completed but shipped out to
● Purchases amounting to P600,000.00 were
the buyer only on January 1, 2022.
shipped on December 30, 2021, FOB Shipping
● Goods costing P750,000.00, purchased from a
Point, and received by AAA Company on
vendor with a buyback agreement.
January 2, 2021. The related sales invoice was
 received on December 31, 2021 and purchases
was recorded on the same date.
● Goods held on consignment with a cost of
P850,000.00. The items are included in the
P4,250,000.00 inventory.
● Goods sold at P500,000.00 were shipped to the
customer on December 29, 2021, FOB
Destination. The said goods costing P350,000.00
were received by the buyer on January 5, 2021.
● Goods out on approval to a customer with a cost
of P480,000.00. The items are counted before
they were shipped out.
29. Which of the following should not be part of the cost
of the inventories?
a. Trade discounts, rebates, and other similar items
b. Storage cost of part-finished goods
c. Import duties and irrecoverable taxes
d. Freight, handling, and other cost directly
attributable to the acquisition of goods
30. You examined the records of Eli Company for the
year ended, Dec. 31, 2022. You discovered the following
errors:

How much is the correct amount of the inventory as of ● Ending inventory was overstated by P15,000
December 31, 2021? ● Beginning inventory was understated by P6,000
● Goods costing P150,000 was received towards
a. 3,870,000.00 the end of 2022 and included in the inventory.
b. 4,350,000.00 Purchases was recorded in 2023 when payment
c. 4,500,000.00 for the account was made.
d. 3,750,000.00 ● Profit for the year (before any adjustments
above) was P900,000
28. DDD Company is adopting FIFO as its cost formula
for its inventory. The following data relating thereto are By how much should the profit be increased or
as follows: decreased because of the errors?

Date Transaction Qty Unit Cost Selling a. 129,000 increase

Price / b. 171,000 increase
Unit c. 171,000 decrease
Jan. 1 1,000 10.00 d. 159,000 decrease
Feb. 15 Purchases 5,000 10.20
Feb. 27 Purchases 7,000 10.50 31. The inventory records of HHH Company disclosed
the following data for the quarter ending March 31,
Apr. 23 Sales 4,000 15.00
2021:
May 30 Purchases 3,000 10.75
Jul. 3 Sales 8,000 15.30
Beginning inventory - at cost P 550,000.000
Beginning inventory - at retail value 825,000.00
At the end of the year, the estimated selling price
decreased to P11.00 and the selling cost is at 10% of the Purchases - at cost 1,200,000.00
selling price. The normal profit margin is at 15%. Purchases - at retail value 1,740,000.00
Purchase returns - at cost 100,000.00
Selling expenses and administrative expenses for the Purchase returns - at retail value 140,000.00
year are P10,000.00 and P12,000.000 respectively. Purchase discounts 60,000.00
Purchase allowances 75,000.00
How much is the cost of the ending inventory?
Sales amounted to P1,200,000, sales return - P50,000.00,
a. 39,600.00
sales discount - P55,000.00, sales allowances -
b. 43,000.00
P60,000.00; markdowns - P120,000.00.
c. 42,750.00
d. 40,000.00
a. 68.98%
 b. 65.73% a. Trade discount is deducted from the invoice
c. 71.58% price
d. 65.20% b. Purchase of goods is recorded gross of trade
discount
32. The retail method and gross profit method are: c. Trade discount may be accounted for using the
gross price method, net price method, and
a. Cost formulas allowance method
b. Method for recording the effect of write-down d. Purchase of goods is recorded net of trade
c. Inventory estimation methods discount
d. Inventory accounting systems
36. DDD Company is adopting FIFO as its cost formula
33. Under the FIFO cost formula, the remaining for its inventory. The following data relating thereto are
inventory is measured based on: as follows:

a. Most recent cost Date Transaction Qty Unit Cost Selling

b. Average cost Price /
c. Specific cost Unit
d. Earliest cost Jan. 1 1,000 10.00
Feb. 15 Purchases 5,000 10.20
34. In the process of preparing financial statements of Feb. 27 Purchases 7,000 10.50
FFF Company for the year ended 2021, management
Apr. 23 Sales 4,000 15.00
collated the following information related to its
May 30 Purchases 3,000 10.75
inventory:
Jul. 3 Sales 8,000 15.30
Date Transaction Qty Unit Cost Selling
Price / At the end of the year, the estimated selling price
Unit decreased to P11.00 and the selling cost is at 10% of the
Jan. 1 2,000 100.00 selling price. The normal profit margin is at 15%.
Jan. 15 Purchases 10,000 120.00
Selling expenses and administrative expenses for the
Mar. 27 Purchases 3,500 125.00
year are P10,000.00 and P12,000.000 respectively.
May 5 Sales 6,000 150.00
Jun. 23 Sales 3,000 180.00 Using the allowance method, what amount should be
Sept. 30 Purchases 5,000 140.00 presented as ending inventory in the statement of
Nov. 3 Sales 3,000 185.00 financial position as of the reporting date?

The company is applying average basis for the costing of a. 39,600.00

its inventories. b. 40,000.00
c. 42,750.00
How much is the cost of goods sold under perpetual d. 43,000.00
inventory system?
37. On Nov. 12, 2022, Panganiban Company entered
a. 1,557,500.00 into a non-cancelable purchase commitment with Eliseo
b. 1,400,000.00 Company, an unrelated entity. The contract requires
c. 1,450,560.00 Panganiban Company to purchase 15,000 units of
d. 1,485,370.00 inventory at a contract price of P310 per unit on Mar. 30,
2023.
35. What is the correct treatment for trade discount?
The following data relate to the purchase commitment:
 Date Market Price a. 58,650.00
Dec. 31, 2022 270 per unit b. 55,250.00
c. 55,650.00
Mar. 30, 2023 300 per unit
d. 58,400.00
What amount of loss from purchase commitment should
40. DDD Company is adopting FIFO as its cost formula
Panganiban Company recognize on Dec. 31, 2022?
for its inventory. The following data relating thereto are
as follows:
a. 150,000
b. 0
c. 600,000 Date Transaction Qty Unit Cost Selling
Price /
d. 450,000
Unit
Jan. 1 1,000 10.00
38. Which of the following must be excluded in the
items of inventories of the buyer? Feb. 15 Purchases 5,000 10.20
Feb. 27 Purchases 7,000 10.50
a. Goods purchased with buy back agreement Apr. 23 Sales 4,000 15.00
b. Goods delivered to the buyer but under May 30 Purchases 3,000 10.75
installment sales Jul. 3 Sales 8,000 15.30
c. Special order goods manufactured to the buyer’s
specification, completed but still in the At the end of the year, the estimated selling price
possession of the selling company decreased to P11.00 and the selling cost is at 10% of the
d. Goods sold under FAS, at the port designated by selling price. The normal profit margin is at 15%.
the buyer
Selling expenses and administrative expenses for the
39. DDD Company is adopting FIFO as its cost formula year are P10,000.00 and P12,000.000 respectively.
for its inventory. The following data relating thereto are
as follows: How much is the net profit to be reported for the year
2021, using the direct method?
Date Transaction Qty Unit Cost Selling
Price / a. 30,500.00
Unit b. 30,100.00
Jan. 1 1,000 10.00 c. 36,650.00
Feb. 15 Purchases 5,000 10.20 d. 33,250.00
Feb. 27 Purchases 7,000 10.50
Apr. 23 Sales 4,000 15.00
May 30 Purchases 3,000 10.75
Jul. 3 Sales 8,000 15.30

At the end of the year, the estimated selling price

decreased to P11.00 and the selling cost is at 10% of the
selling price. The normal profit margin is at 15%.

Selling expenses and administrative expenses for the

year are P10,000.00 and P12,000.000 respectively.

How much is the gross profit, if allowance method is

used in recording the write-down?