INTERMEDIATE ACCOUNTING 2

INVENTORY COST FLOW and LCNRV

1. An entity provided the following information:

Units Unit Cost Total Cost
Jan 1 Beginning Balance 10,000 150 1,500,000.00
5 Purchase 10,000 180 1,800,000.00
15 Sale 15,000
16 Sales Return 1,000
25 Purchase 4,000 200 800,000.00
26 Purchase Return 2,000 200 400,000.00

1. Under FIFO, what amount should be reported as cost of goods sold?

a. 2,220,000
b. 2,620,000
c. 2,500,000
d. 2,900,000
2. Under weighted average, what amount should be reported as ending inventory?
a. 1,345,440
b. 1,366,640
c. 1,413,360
d. 1,432,000
3. Under moving average, what amount should be reported as ending inventory?
a. 1,690,000
b. 1,390,000
c. 1,790,000
d. 1,600,000
4. Under moving average, the next sale of inventory would be priced at what cost?
a. 173.75
b. 179.00
c. 200.00
d. 190.00
2. On December 31, 2018, an entity reported inventory at P3,000,000 cost and P2,900,000 net realizable
value. On December 31, 2019, the inventory was P4,000,000 at cost and P3,700,000 at net realizable
value. The entity made net purchases of P9,000,000 during 2019. What amount should be reported as cost
of goods sold for 2019?
a. 8,000,000
b. 8,200,000
c. 8,450,000
d. 8,300,000
3. On December 31, 2018. an entity experienced a decline in the value of inventory resulting in a write
down from P4,000,000 cost to P3,500,000 net realizable value. The entity used the allowance method to
record the necessary adjustment. In 2019, market conditions have improved dramatically. On December
31, 2019, the inventory had a cost of P5,000,000 and net realizable value of P4,800,000. The entity made
purchases of P20,000,000 in 2019?
1. What amount should be recognized as gain on reversal of inventory writedown in 2019?
a. 200,000
b. 300,000
c. 500,000
d. 0

2. What amount should be reported as cost of goods sold in 2019?

a. 19,000,000
b. 19,300,000
c. 18,700,000
d. 24,000,000
4. An entity provided the following information about inventory:
Cost NRV LCNRV
Category 1
A 2,625,000.00 2,875,000.00 2,625,000.00
B 1,700,000.00 1,600,000.00 1,600,000.00
Category 2
C 2,000,000.00 1,600,000.00 1,600,000.00
D 1,950,000.00 1,800,000.00 1,800,000.00

1. What is the inventory measurement under LCNRV individual approach?

a. 7,625,000
b. 8,275,000
c. 7,725,000
d. 7,875,000

2. What is the inventory measurement under the LCNRV category approach?

a. 7,875,000
b. 7,725,000
c. 8,275,000
d. 7,625,000

3. What is the inventory measurement under the LCNRV total approach?

a. 8,275,000
b. 7,625,000
c. 7,875,000
d. 7,725,000

5. On December 1, 2018, an entity entered into a commitment to purchase 100,000 barrels of

aviation fuel for P55 per barrel on March 31, 2019. The entity entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December 31,
2018, the purchase price of aviation fuel had fallen to P50 per barrel. However, by March 31,
2019, when the entity took delivery of the 100,000 barrels the price of aviation fuel had risen to
P53 per barrel.
1. What amount should be recognized as loss on purchase commitment in 2018?
a. 500,000
b. 200,000
c. 300,000
d. 0

2. What amount should be recognized as gain on purchase commitment for 2019?

a. 500,000
b. 300,000
c. 800,000
d. 0

3. What amount should be debited to purchases on March 31, 2019?

 a. 5,500,000
b. 5,300,000
c. 5,000,000
d. 4,700,000

6. During the current year, an entity purchased a tract of land for P12,000,000. The entity incurred
additional cost of P3,000,000 in preparing the land for sale. Of the tract of land, 70 % was
subdivided into residential lots and 30 % was for road and a park. The tract of land was
subdivided into residential lots as 100 Class A lots with sale price of P240,000 per lot. 100 Class
B lots with sale price of P160,000 per lot, and 200 Class C lots with sale price of P100,000 per
lot. What amount of the costs should be allocated to Class A lots?
a. 3,000,000
b. 3,750,000
c. 6,000,000
d. 4,200,000