INVENTORY

1. Which of the following would not be reported as inventory?

a. Land acquired for resale by a real estate firm
b. Stocks and bonds held for resale by a brokerage firm
c. Partially completed goods held by a manufacturing company
d. Machinery acquired by a manufacturing company for use in
the production process

2. One of the following is not a characteristic of inventory:

a. They are held for sale in the ordinary course of business
operations
b. They are in the process of production for such sale
c. They are tangible or intangible items of personal property
d. They are currently consumed in the production of goods or
services to made available for sale

3. The cost of inventories include all of the following, except

a. Costs of purchase
b. Costs of conversion
c. Other costs incurred in bringing the inventories to their present
condition or location.
d. Selling cost

4. Which of the following types of interest cost incurred in connection

with the purchase or manufacture of inventory should be
capitalized as a product cost?
a. Purchase discounts lost
b. Interest incurred during the production of discrete projects
such as ships or real estate projects
c. Interest incurred on notes payable to vendors for routine
purchases made on a repetitive basis
d. All of these should be capitalized.

5. The allocation of fixed production overhead to the cost of

conversion is based on
a. Normal capacity of production facilities
b. Actual use of production facilities

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 c. Either the normal capacity or actual use of production facilities
d. Relative sales value method

6. How should unallocated fixed overhead costs be treated?

a. Allocated to finished goods and cost of goods based on the
ending balances in the accounts.
b. Allocated to raw materials, work in process and finished
goods, based on the ending balances in the accounts.
c. Recognized as an expense in the period in which they are
incurred.
d. Allocated to work in process, finished goods and cost of goods
sold based on the ending balances in the accounts.

7. When manufacturing inventory, what is the accounting treatment

for abnormal freight in costs?
a. Charge to expense for the period.
b. Charged to finished goods inventory.
c. Charged to raw materials inventory.
d. Allocate to raw materials, work in process and finished goods.

8. Which of the following costs of conversion cannot be included in

cost of inventory?
a. Cost of direct labor.
b. Factory rent and utilities.
c. Salaries of sales staff (sales department shares the building
with factory).
d. Factory overhead based on normal capacity.

9. Costs that are incurred in bringing the inventories to their present

location and condition are capitalized as cost of inventories and
these include
a. Costs of designing products for specific customers
b. Abnormal amount of wasted material, labor and production
costs
c. Storage cost not necessary in the production process before a
further production stage.
d. Selling costs

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10. When determining the unit cost of an inventory item, which of the
following should not be included?
a. Interest on loan obtained to purchase the item.
b. Commission paid when purchased
c. Labor cost of the item when manufactured
d. Depreciation of plant equipment used in manufacturing the
item.

11. From a theoretical point of view, what is the treatment for freight
cost, handling and warehousing cost?
a. All cost should be inventoriable
b. Only freight cost should be inventoriable
c. Both freight cost and handling should be inventoriable while
warehousing cost should be an expense.
d. All cost mentioned should be expensed

12. Which of the following would not be included in the cost of work in
process inventory?
a. Cost of electricity to operate factory equipment
b. Maintenance costs of factory equipment
c. Depreciation on office equipment in the sales manager's office
d. Depreciation on factory equipment

13. The cost of purchase of inventory does not include

a. Purchase price
b. Import duties and taxes
c. Freight, handling and other cost directly attributable to
acquisition
d. Trade discount, rebate and other similar item

14. Which statement is incorrect with respect to inventories under

PAS 2?
a. Inventories shall be measured at the lower of cost and
net realizable value.
b. The cost of inventories shall comprise all costs of purchase,
costs of conversion and other costs incurred in bringing the
inventories to their present location and condition.

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 c. The cost of inventories of a service provider consists primarily
of labor and other costs of personnel directly engaged in
providing the service, including supervising personnel and
attributable overhead.
d. The costs of conversion of inventories include costs directly
related to the units of production such as direct labor, and only
a systematic allocation of variable production overhead.

15. Costs that are incurred in bringing the inventories to their present
location and condition are capitalized as cost of inventories and
these include
a. Costs of designing products for specific customers
b. Abnormal amount of wasted material, labor and production
costs
c. Storage cost not necessary in the production process before a
further production stage.
d. Selling costs
16. When determining the unit cost of an inventory item, which of the
following should be included?
a. Interest on loan obtained to purchase the item.
b. Commission paid to broker when purchased
c. Administrative cost for purchasing department
d. Depreciation of delivery equipment for delivery to buyer.

17. Which of the following would not be included in the cost of work in
process inventory?
a. Cost of electricity to operate factory equipment
b. Maintenance costs of factory equipment
c. Depreciation on office equipment in the sales manager's office
d. Depreciation on factory equipment

18. Which statement is correct?

I. Fixed production overheads are those indirect costs of
production that have a direct relationship in connection to the
volume of production.
II. Variable production overheads are those indirect costs of
production that vary directly or nearly directly with the volume
of production.

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 a. I only c. Both I and II
b. II only d. Neither I nor II

19. Fixed production overheads include all of the following, except

a. Depreciation of factory building
b. Maintenance of factory building and equipment
c. Cost of factory management and administration
d. Indirect materials and indirect labor
20. Which statement is incorrect concerning allocation of production
overhead?
a. Variable production overheads are allocated to each unit of
production on the basis of the actual use of production
facilities.
b. The allocation of fixed production overheads to the costs of
production is based on the actual level of production.
c. The amount of fixed overhead allocated to each unit of
production is not increased as a consequence of low
production or idle plant.
d. Unallocated overheads are recognized as expense in the
period in which they are incurred.

21. Which of the following items should be included in a company’s

inventory at the balance sheet date?
a. Goods in transit, which were purchased, FOB destination.
b. Goods received from another company for sale on
consignment.
c. Goods sold to a customer, which are being held for the
customer to call for at the customer’s convenience.
d. Goods in transit, which were purchased FOB shipping point.

22. Which of the following items should be excluded from a

company’s inventory at the balance sheet date?
a. Goods lost while in transit, which were purchased FOB
shipping point.
b. Goods held by customers on approval or on trial
c. Goods out on consignment
d. Goods in transit purchased FOB shipping point

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23. Goods on consignment are
a. Included in the consignee's inventory.
b. Recorded in a consignment out account, which is an inventory
account.
c. Recorded in a consignment in account, which is an inventory
account.
d. All of the above.

24. Merchandise shipped FOB shipping point on the last day of the
year should be ordinarily included in
a. The buyer’s inventory balance.
b. The seller’s inventory balance.
c. Neither the buyer’s nor the seller’s inventory balance.
d. Both the buyer’s and the seller’s inventory balance.

25. The costs of inventories of a service provider include all of the

following, except
a. Labor and other costs of personnel directly engaged in
providing the service.
b. Compensation of supervisor personnel directly engaged in
providing the service.
c. Attributable overhead incurred in providing the service.
d. Profit margin factored in to the price charged against the
customer by the service provider.

26. When using the periodic inventory method, which of the following
generally would not be separately accounted for in the
computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the
period
d. Cost of transportation-in for merchandise purchases during the
period

27. Exchange differences arising directly on the recent acquisition of

inventories are
a. Capitalized as cost of the inventories

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 b. Deferred and amortized over a reasonable period
c. Recognized as expense in the period incurred
d. Charged directly to retained earnings

28. When inventories are purchased with deferred settlement terms,

the difference between the purchase price for normal credit terms
and the amount paid is recognized as
a. Interest expense over the period of financing
b. Interest expense in the year of purchase
c. Cost of the inventories
d. Component of equity

29. The cost of inventories that are not ordinarily interchangeable and
goods or services produced and segregated for specific projects
should be assigned by using
a. LIFO c. Average method
b. FIFO d. Specific identification
30. In situations where there is a rapid turnover, an inventory method,
which produces a balance valuation similar to FIFO, is
a. Average cost c. Standard cost
b. Prime cost d. Specific identification

31. Which of the following is not true of the perpetual inventory

method?
a. Purchases are recorded as debits to the inventory account.
b. The entry to record a sale includes a debit to Cost of Goods
Sold and a credit to Inventory.
c. After a physical inventory count, Inventory is credited for any
missing inventory.
d. Purchase returns are recorded by debiting Accounts Payable
and crediting Purchase Returns and Allowances.

32. Which of the following will occur when inventory costs are
decreasing?
a. LIFO will result in lower net income and lower ending inventory
than will FIFO.
b. FIFO will result in lower net income and lower ending inventory
than will LIFO.

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 c. LIFO will result in a lower net income, but a higher ending
inventory, than will FIFO.
d. FIFO will result in a lower net income, but a higher ending
inventory, than will LIFO.

33. Which of the inventory cost flow assumptions provides the best
measure of earnings, where "best" means most appropriate for
predicting future earnings, when prices have been declining?
a. FIFO c. LIFO
b. Specific identification d. Average cost

34. In a period of rising prices, the inventory cost allocation method

that tends to result in the lowest reported net income is
a. LIFO c. Moving average
b. FIFO d. Weighted average

35. Which of the following inventory pricing methods best

approximates the specific identification in most manufacturing
situations?
a. Activity-based costing c. Average cost
b. FIFO d. LIFO

36. An entry debiting inventory and crediting cost of goods sold would
be made when
a. Merchandise is sold and the periodic system is used.
b. Merchandise is sold and the perpetual system is used.
c. Merchandise is returned and the perpetual system is used.
d. Merchandise is returned and the periodic system is used.

37. Cost of goods sold is equal to

a. The cost of the inventory on hand at the beginning of the
period plus net purchases minus the cost of the inventory on
hand at the end of the period.
b. The cost of the inventory on hand at the end of the period plus
net purchases minus the cost of the inventory on hand at the
beginning of the period.

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 c. The cost of the inventory on hand at the beginning of the
period minus net purchases plus the cost of the inventory on
hand at the end of the period.
d. The cost of the inventory on hand at the beginning of the
period plus net sales minus the cost of the inventory on hand
at the end of the period.

38. Under the perpetual system, if an entity issues a credit

memorandum, from which transaction will the entity debit
merchandise inventory?
a. Sales returns c. Sales discounts
b. Sales allowance d. All of the above

39. What is the maximum amount at which inventory can be valued

when the goods have experienced a permanent decline in value?
a. Historical cost
b. Sales price
c. Net realizable value
d. Net realizable value reduced by a normal profit margin

40. Net realizable value is

a. Current replacement cost
b. Estimated selling price
c. Estimated selling price less estimated cost to complete
d. Estimated selling price less estimated cost to complete and
estimated cost to sell

41. Which statement is incorrect concerning net realizable value?

a. The cost of inventories may not be recoverable if those
inventories are damaged, if they have become wholly or
partially obsolete or their selling prices have declined.
b. Inventories are usually written down to net realizable value
item by item.
c. It is appropriate to writedown inventories on the basis of a
classification of inventory, for example, finished goods, or all
the inventories in a particular industry or geographical
segment.

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 d. The amount of any writedown of inventories to net realizable
value and all losses of inventories shall be recognized as
inventory that is recognized as an expense in the period the
writedown or loss occurs.

42. The cost of inventories in applying the valuation at lower of cost or

net realizable value should be assigned by using
a. FIFO only
b. Average method only
c. LIFO only
d. Either FIFO or average method

43. The lower of cost of NRV for inventories may be applied to total
inventory, to groups of similar items or to each item. Which
application generally results in the lowest inventory amount?
a. Separately to each item
b. Total inventory
c. Groups of similar item
d. All applications result in the same amount

44. Lower of cost or market

a. Is most conservative if applied to total inventory.
b. Is most conservative if applied to major categories of
inventory.
c. Is most conservative if applied to individual items of inventory.
d. Must be applied to major categories for tax purposes.

45. The amount of any writedown of inventory to net realizable value

and all losses of inventory shall be
a. Recognized as operating expense in the period the writedown
or loss occurs.
b. Recognized as other expense in the period the writedown or
loss occurs.
c. Recognized as component of cost of sales in the period the
writedown or loss occurs.
d. Deferred until the related inventory is sold.

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46. Which statement is incorrect concerning inventory?
a. When inventories are sold, the carrying amount of those
inventories shall be recognized as an expense in the period in
which the related revenue is recognized.
b. The amount of writedown of inventories to net realizable value
and all losses of inventories shall be recognized as an
expense in the period the writedown or loss occurs.
c. The amount of any reversal of any writedown of inventories
arising from an increase in net realizable shall be recognized
as a reduction in the amount of inventories recognized as an
expense in the period in which the reversal occurs.
d. Inventory used as a component of self-constructed property,
plant and equipment is recognized as expense when the item
of property, plant and equipment is sold.

47. The cost of inventories may not be recoverable under all of the
following conditions, except
a. The estimated costs of completion or the estimated costs to be
incurred to make the sale have increased.
b. The inventories have become wholly or partially obsolete.
c. The inventories are damaged
d. The selling prices of the inventories have increased.

48. All of the following costs should be charged against revenue in the
period, except
a. Manufacturing overhead costs for a product manufactured and
sold in an accounting period.
b. Costs that will not benefit any future period.
c. Costs from idle manufacturing capacity resulting from an
unexpected plant shutdown.
d. Costs of normal shrinkage and scrap incurred for the
manufacture of a product in ending inventory.

49. An exception to the general rule that costs should be charged to

expense in the period incurred is
a. Factory overhead costs incurred on a product manufactured
but not sold during the current period.

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 b. Interest costs for financing of inventories that are routinely
manufactured in large quantities on a repetitive basis.
c. General and administrative fixed costs incurred in connection
with the purchase of inventory.
d. Sales commission and salary costs incurred in connection with
the sale of inventory.

50. When a portion of inventories has been pledged as security on a

loan
a. The value of the portion pledged should be subtracted from
the debt
b. An equal amount of retained earnings should be appropriated
c. The fact should be disclosed but the amount of current assets
should not be affected
d. The cost of the pledged inventory should be transferred from
current to noncurrent asset

51. Losses which are expected to arise from firm and uncancellable
commitments for the future purchase of inventory items, if material
should be
a. Recognized in the accounts by debiting loss on purchase
commitments and crediting estimated liability for loss on
purchase commitments
b. Disclosed in the notes
c. Ignored
d. Charged to retained earnings
52. The credit balance that arises when a net loss in a purchase
commitment is recognized should be
a. Presented as a current liability
b. Subtracted from ending inventory
c. Presented as an appropriation of retained earnings
d. Presented in the income statement

53. Assuming no beginning inventory, what can be said about the

trend of inventory prices if cost of goods sold computed when the
inventory is valued using FIFO method exceeds cost of goods
sold when inventory is valued using LIFO method (for tax
purposes)?

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 a. Prices decreased
b. Prices remained unchanged
c. Prices increased
d. Price trends cannot be determined from the information given

54. If a firm’s work in process inventory has increased during the

period
a. Its cost of goods sold will be greater than its cost of goods
manufactured
b. Its cost of goods sold will be less than its cost of goods
manufactured
c. Its manufacturing costs for the period will be less than its costs
of goods manufactured
d. Its manufacturing costs for the period will be more than its
costs of goods manufactured

55. Revenue from sale of goods shall be recognized when all of the
following conditions have been satisfied, except
a. The entity has transferred to the buyer the significant risks and
regards of ownership of the goods
b. The entity retains either continuing managerial involvement or
effective control over the goods sold.
c. The amount of revenue can be measured reliably.
d. It is probable that economic benefits will flow to the entity.

56. “Bill and hold” sales, in which delivery is delayed at the buyer’s
request but the buyer assumes title and accepts invoicing, should
be recognized when
a. The buyer makes an order
b. The seller starts manufacturing the goods.
c. The title has been transferred but the goods are kept on the
seller’s premises.
d. It is probable that the delivery will be made, payment terms
have been established, and the buyer has acknowledged the
delivery instructions.

57. A new company manufacturing and selling consumable products

has come out with an offer to refund the cost of purchase within

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 one month of sale if the customer is not satisfied with the product.
When should the company recognize the revenue?
a. When goods are sold to the customers
b. After one month of sale
c. Only if goods are not returned by the customers after the
period of one month.
d. At the time of sale along with an offset to revenue of the
liability of the same amount for the possibility of the return.

58. When the current year’s ending inventory is understated, net

income of the same period
a. Would be overstated.
b. Would be understated.
c. Would not be affected
d. Cannot be determined from the information.

59. An overstatement of ending inventory in Period 1 would result in

income of Period 2 being
a. Overstated.
b. Understated.
c. Correctly stated.
d. The answer cannot be determined from the information given.

60. Which of the following will result if the current year's ending
inventory amount is understated in the cost of goods sold
calculation?
a. Cost of goods sold will be overstated.
b. Total assets will be overstated.
c. Net income will be overstated.
d. Both a and c.

61. This method is often used for convenience for measuring

inventories of large number of rapidly changing items with similar
margins for which it is impractible to use other costing methods.
a. Standard cost methods
b. Retail method
c. Gross profit method
d. Relative sales price method

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62. An inventory method which is designed to approximate inventory
valuation at the lower of cost or market is
a. Last-in, first-out.
b. First-in, first-out.
c. Conventional retail method.
d. Specific identification.

63. Inventory estimates will be required for the following except?

a. When interim financial statements are prepared.
b. When inventory is destroyed by typhoon or lahar flow.
c. As proof of reasonable accuracy of the physical inventory.
d. In the determination of the ending inventory to be shown on
the balance sheet at year- end.

64. The use of the gross profit method assumes

a. The amount of gross profit is the same as in prior years.
b. Sales and cost of goods sold have not changed from previous
years.
c. Inventory values have not increased from previous years.
d. The relationship between selling price and cost of goods sold
is similar to prior years.

65. The gross profit method of estimating inventory would not be

useful when
a. A periodic system is in use and inventories are required for
interim statements.
b. Inventories have been destroyed or lost by fire, theft or other
casualty.
c. There is a significant change in the mix of products being sold.
d. The relationship between gross profit and sales remains stable
over time.

66. In applying the retail method, the standard requires the use of
a. FIFO retail c. Conservative retail
b. Average cost retail d. LIFO retail

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67. To produce an inventory valuation, which approximates the lower
of average cost or market using the conservative retail inventory
method, the computation of the ratio of cost to retail should
a. Include markups but not markdowns
b. Include markups and markdowns
c. Ignore both markups and markdowns
d. Include markdowns but not markups

68. Which of the following would cause an increase in the cost ratio as
used in the retail inventory method?
a. Lower markdowns
b. Higher initial markups
c. Sales returns and allowances
d. Higher markup cancellations

69. The retail inventory method would include which of the following in
the calculation of the goods available for sale at both cost and
retail?
a. Freight in c. Markups
b. Purchase returns d. Markdowns

70. When the conventional retail inventory method is used,

markdowns are commonly ignored in the computation of the cost
to retail ratio because
a. There may be no markdowns in a given year
b. This trend may be a better approximation of the lower of cost
or market
c. Markups are also ignored
d. This tends to result in the showing of a normal profit margin in
a period when no markdown of goods have been sold

71. A major advantage of the retail inventory method is that it

a. Permits companies which use it avoid taking annual inventory
b. Hides costs from customers and employees
c. Provides a method for inventory control and facilitates
determination of the periodic inventory
d. Gives a more accurate statement of inventory cost than other
methods

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72. Biological assets are
a. Living animal only
b. Living plants only
c. Both living animals and living plants
d. None of the above

73. Biological assets are measured at

a. Cost
b. Lower of cost or net realizable value
c. Fair value less estimated point of sale cost
d. Net realizable value less normal profit margin

74. Agricultural produce is measured at

a. Fair value
b. Fair value less cost to sell
c. Net realizable value
d. Net realizable value less normal profit margin

75. Generally speaking, biological assets relating to agricultural

activity shall be measured using
a. Historical cost
b. Historical cost less depreciation less impairment
c. A fair value approach
d. Net realizable value

76. A gain or loss arising on the initial recognition of a biological asset

and from a change in the fair value less estimated point of sale
costs of a biological asset should be included in
a. The net profit or loss for the period.
b. The statement of recognized gains and losses.
c. A separate revaluation reserve.
d. A capital reserve within equity.

77. Which of the following is not dealt with by PAS 41 on Agriculture?

a. The accounting for biological assets.
b. The initial measurement of agricultural produce harvested from
the entity’s biological assets.
c. The processing of agricultural produce after harvesting.

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 d. The accounting treatment of government grants received in
respect of biological assets.

78. Where there is a production cycle of more than one year for a
biological asset, PAS 41 encourages separate disclosure of the
a. Physical change only
b. Price change only
c. Total change in value
d. Both the physical change and price change

79. Ella Company regularly buys sweaters from Millard Company and
is allowed trade discount of 20% and 10% from a list price. Ella
made a purchase on March 20 and received an invoice with a list
price of P4,000,000, a freight charge of P100,000, and payment
terms of net 30 days. Ella should record the purchase at
a. 2,880,000 c. 2,980,000
b. 4,000,000 d. 4,100,000

80. The following information pertains to Rasner Company for 2009:

Merchandise purchased for resale 4,000,000
Freight out 200,000
Freight in 500,000
Storage cost 50,000
Purchase returns 120,000
The inventoriable cost should be
a. 4,380,000 c. 4,630,000
b. 4,250,000 d. 4,500,000

81. On August 1, Erica Company recorded purchases of inventory of

P800,000 and P1,000,000 under credit terms of 2/15, net 30. The
payment due on the P800,000 purchase was remitted on August
14. The payment due on the P1,000,000 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?

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 Net Method Gross Method
a. 1,784,000 1,764,000
b.   1,764,000 1,800,000
c.   1,764,000 1,784,000
d.   1,800,000 1,764,000
82. On June 1, 2009, Elijah Company sold merchandise with a list
price of P5,000,000 to XYZ. Elijah allowed trade discounts of 20%
and 10%. Credit terms were 5/10, n/30 and the sale was Made
FOB shipping point. Elijah prepaid P50,000 of delivery cost for
XYZ as an accommodation. On June 11, 2009, Elijah received
from XYZ full remittance of
a. 3,850,000 c. 3,800,000
b. 3,420,000 d. 3,470,000

83. Esther Company’s inventory at December 31, 2008 was

P5,000,000 based on physical count priced at cost and before any
necessary adjustment for the following:

 Merchandise costing P500,000 shipped FOB shipping point

from a vendor on December 30, 2008 was received and
recoded on January 5, 2009.
 Goods in the shipping area were included in inventory because
shipment was not made until January 5, 2009. The goods
billed to the customer FOB shipping point on December 30,
2008 had a cost of P200,000.

What should be reported as inventory on December 31, 2008?

a. 5,000,000 c. 5,300,000
b. 5,500,000 d. 4,800,000

84. The unadjusted physical inventory of Edna Company at December

31, 2008 was P6,000,000. Other information follows:

Goods were received and recorded on January 2, 2009 with a

cost of 700,000. These goods were shipped by the supplier on
December 29, 2008, FOB shipping point.
Goods in the warehouse costing P1,000,000 were billed to the
customer FOB shipping point on December 30, 2008. The goods

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 were included in inventory because they were shipped on January
5, 2009.
A special order, fabricated to specifications of a customer costing
200,000, was finished and specifically segregated in the back part
of the shipping room on December 31, 2008. The customer was
billed on that date and the machine included in inventory because
the customer accepted delivery on January 6, 2009.

How much should Edna report as inventory on its December 31,

2008 balance sheet?
a. 5,700,000 c. 6,700,000
b. 6,500,000 d. 7,700,000

85. Woodson Company issued shares as consideration for the

purchase of inventory on January 1, 2008. The inventory was
eventually sold on May 1, 2008. The value of the inventory on
January 1, 2008 was P2,500,000 and its value on the date of sale
was P2,700,000. The sales proceeds amounted to P3,700,000.
The shares issued have a market value of P2,200,000 and a par
value of P2,000,000. How much is the gross profit from the sale
of the inventory on May 1, 2008?
a. 1,500,000 c. 1,000,000
b. 1,200,000 d. 1,700,000

86. During January, Eleanor Company recorded the following

information regarding its inventory:
Units Unit Total cost Units on
cost hand
Balance on 1/1 9,000 300 2,700,000 9,000
Purchased on 1/9 6,000 250 1,500,000 15,000
Sold on 1/16 10,000 5,000
Purchased on 1/22 5,000 400 2,000,000 10,000
Sold on 1/27 4,000 6,000

What is the ending inventory of Eleanor Company under FIFO

method?
a. 2,000,000 c. 1,900,000
b. 2,250,000 d. 2,500,000

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Questions 87 through 88

During January 2009, Edith Company which uses the average method
of inventory costing, recorded the following information pertaining to its
inventory:
Units Unit Total cost Units on
cost hand
Balance on 1/1 10,000 200 2,000,000 10,000
Purchased on 1/11 6,000 300 1,800,000 16,000
Sold on 1/22 9,500 6,500
Sales return on 1/23 500 7,000
Purchased on 1/26 4,600 400 1,840,000 11,600
Purchase return on 1/27 600 400 240,000 11,000

87. Using the weighted-average method, what amount should Edith

report as inventory at January 31, 2009?
a. 2,300,000 c. 2,970,000
b. 3,700,000 d. 3,262,500
88. Using the moving-average method, what amount should Edith
report as inventory at January 31, 2009?
a. 2,300,000 c. 2,970,000
b. 3,700,000 d. 3,262,500

89. Esmeralda Company uses the perpetual inventory system. On

January 1, 2008, the balance of the inventory account was
P1,000,000 including goods costing P200,000 purchased in
transit, FOB shipping point that did not arrive until January 10,
2008. Purchases in 2008 amounted to P12,000,000. The
perpetual records showed an inventory balance of P1,500,000 on
December 31, 2008. A physical count taken also on the same
date showed an inventory of P1,250,000. What amount should be
reported as cost of goods sold for the year 2008?
a. 11,750,000 c. 11,500,000
b. 11,550,000 d. 11,300,000

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90. The inventory control account balance of Emy Company at
December 31, 2009 was P2,780,000 using the perpetual inventory
system. A physical count conducted on that day found inventory
on hand worth P2,300,000. Net realizable value for each inventory
item held for sale exceeded cost. An investigation of the
discrepancy revealed the following:
a. Goods worth P60,000 held on consignment for Portfolio
Accessories had been included in the physical count.
b. Goods costing P120,000 were purchased on credit from
Romina Company on December 27, 2009 on FOB shipping
terms. The goods were shipped on December 28, 2009
but, as they had not arrived by December 31, 2009, were
not included in the physical count. The purchase invoice
was received and processed on December 31, 2009.
c. Goods costing P240,000 were sold on credit to Alonso
Company for P300,000 on December 28, 2009 on FOB
destination terms. The goods were still in transit on
December 31, 2009. The sales invoice was raised and
processed on December 31, 2009.
d. Goods costing P270,000 were purchased on credit (FOB
destination) from Massa Handbags on December 29, 2009.
The goods were received on December 30, 2009 and
included in the physical count. The purchase invoice was
received on January 2, 2010.
e. On December 31, 2009, Emy Company sold goods costing
P650,000 on credit (FOB shipping) terms to Hamilton’s
Boutique for P900,000. The goods were dispatched from
the warehouse on December 31, 2009 but the sales invoice
had not been raised at that date.
f. Damaged inventory items valued P40,000 were discovered
during the physical count. These items were still recorded
on December 31, 2009 but were omitted from the physical
count records pending their writeoff.
What is Emy Company’s adjusted inventory amount?
a. 2,600,000 c. 2,660,000
b. 2,360,000 d. 3,000,000

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91. On October 1, 2008, Rooney Company consigned 50 freezers to
Astana Company costing P35,000 each for sale at P44,000 each
and paid P30,000 in transportation costs. On December 30, 2008,
Astana reported the sale of 15 freezers and remitted P594,000.
The remittance was net of the agreed 10% commission. What
amount should Rooney recognize as consignment sales revenue
for 2008?
a. 630,000 c. 624,000
b. 594,000 d. 660,000

92. The physical count conducted in the warehouse of Statham

Company on December 31, 2008 revealed merchandise with a
total cost of P4,000,000 was on hand on that date. However the
following items were excluded from the count:
* Goods sold to a customer, which are being held for the
customer to call for at the customer’s convenience with a
cost of P300,000.
* 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”. Your investigation
revealed that the customer’s order was dated December 20,
2008, but that the case was shipped and the customer billed
on January 10, 2009.
* Merchandise held by Finishing Company costing P250,000
for further processing and packaging.
The correct amount of inventory that should be reported in
Statham Company’s balance sheet at December 31, 2008 is
a. 4,650,000 c. 4,550,000
b. 4,350,000 d. 4,100,000

93. Manchester Company’s trial balance of income statement

accounts for the year ended December 31, 2008 showed the
following

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 Debit Credit

194
 Sales 1,800,000
Costs of sales 920,000
Administrative expenses 100,000
Loss on sale of equipment 30,000
Sales commissions 120,000
Interest income 50,000
Freight out 40,000
Loss on early retirement of long 10,000
term debt
Uncollectible account expense 30,000 _______
1,250,000 1,850,000
Other information:
Finished goods inventory:
January 1 400,000
December 31 270,000

In Manchester’s 2008 income statement, what amount should

Manchester report as the cost of goods manufactured?
a. 1,050,000 c. 750,000
b. 790,000 d. 920,000

94. Ballard Company provides the following data with respect to its
inventory:

Items counted in the bodega 4,000,000

Items included in the count specifically segregated
per sales contract 100,000
Items in receiving department, returned by customer,
in good condition 50,000
Items ordered and in the receiving department,
invoiced but not received 400,000
Items ordered, invoice received but goods not
received. Freight is paid by seller. 300,000
Items shipped today, invoice mailed, FOB shipping
point 250,000
Items shipped today, invoice mailed, FOB
destination 150,000
Items currently being used for window display 200,000

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 Items on counter for sale 800,000
Items in receiving department, refused by the
company because of damage 180,000
Items included in the count, damaged and unsalable 50,000
Items in the shipping department 250,000

What is the correct amount of inventory?

a. 5,700,000 c. 5,100,000
b. 5,800,000 d. 5,400,000

95. An analysis of the ending inventory account of Lilac Company on

December 31, 2008 disclosed the inclusion of the following items:
Merchandise in transit purchased on terms:
FOB shipping point 165,000
FOB destination 100,000
Merchandise out on consignment at sales price 195,000
(including mark up of 30% on cost)
Merchandise sent to a customer for approval (cost of
goods, P32,000) 42,000
Merchandise held on consignment 35,000
The inventory account at December 31, 2008 should be reduced
by
a. 355,000 c. 203,500
b. 190,000 d. 222,000
96. The following information pertains to Leslie Company for the year
2008:
Cash sales 640,000
Cash collected on accounts receivable 4,400,000
Accounts receivable, December 31, 2007 1,100,000
Accounts receivable, December 31, 2008 950,000
Bad debts written off 60,000
Purchases 3,500,000
Inventory, December 31 840,000
Gross profit on sales 30%
The inventory on January 1 was
a. 1,485,000 c. 1,350,000
b. 805,000 d. 640,000

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97. Kelly Company uses the perpetual inventory system. On January
1, 2008, the balance of the inventory account was P2,000,000
including goods costing P500,000 purchased in transit, FOB
shipping point that did not arrive until January 5, 2008. Purchases
in 2008 amounted to P15,000,000. The perpetual records showed
an inventory balance of P2,500,000 on December 31, 2008. A
physical count taken also on the same date showed an inventory
of P2,650,000. What amount should be reported as cost of goods
sold for the year 2008?
a. 14,500,000 c. 14,650,000
b. 14,350,000 d. 14,150,000

98. The accounting staff of Simone Company submitted an inventory

list at December 31, 2008 which showed a total of P3,000,000.
The following information, which may or may not be relevant to the
inventory value submitted, is given below:
 Excluded from the inventory was merchandise costing P100,000
because it was transferred to the delivery department for
packaging on December 28 and for shipping on January 5, 2009
 The bank delivered the bill of lading and other import documents
on merchandise and the trust receipt accepted by the company
on December 27, 2008. Taxes and duties have been paid on
this shipment but the broker did not deliver the merchandise until
January 7, 2009. Delivered cost of the shipment totaled
P500,000. This shipment was not included in the inventory on
December 31, 2008.
 A review of the company’s purchase orders showed a
commitment to buy P200,000 worth of merchandise from Viola
Company. This was not included in the inventory because the
goods were received on January 5, 2009.
 Supplier’s invoice for P120,000 worth of merchandise dated
December 28, 2008 was received through the mail on December
30, 2008 although the goods arrived only on January 4, 2009.
Shipment terms are FOB destination. This item was included in
the December 31, 2008 inventory by the company.
 Goods valued at P60,000 were received from Darlene Company
on December 28, 2008 for approval by Simone. The inventory

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 team included this merchandise in the list but did not place any
value on it. On January 4, 2009, the company informed the
supplier by long distance telephone of the acceptance of the
goods and the supplier’s invoice was received on January 7,
2009.
 On December 27, 2008, an order for P160,000 worth of
merchandise was placed. This was included in the year-end
inventory although it was received only on January 5, 2009. The
seller shipped the goods before year-end FOB shipping point.
The correct amount of inventory on December 31, 2008 is
a. 2,980,000 c. 3,480,000
b. 3,540,000 d. 3,140,000

99. Everly Company has determined its December 31, 2008 inventory
on a FIFO basis at P5,000,000. Information pertaining to that
inventory follows:
Estimated selling price 6,000,000
Cost to complete 700,000
Cost to sell 800,000
Normal profit margin 400,000
Current replacement cost 4,800,000
Everly records losses that result from applying the lower of cost or
market rule. At December 31, 2008, Everly should report
inventory at
a. 5,000,000 c. 4,100,000
b. 4,500,000 d. 4,800,000

100. Rolex Company carries four items in its inventory. The following
per-unit data relate to these items at the end of 2009:
Units Cost Replace Estimated Selling Norma
ment Sales Cost l Profit
Cost Price
Category 1
Commodity A 3,000 55.00 52.00 65.00 11.00 10.00
Commodity B 2,000 60.00 62.00 90.00 8.00 12.50
Category 2
Commodity C 5,000 25.00 20.00 42.00 9.00 5.00
Commodity D 4,000 70.00 73.00 75.00 12.00 17.50

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 The proper amount of inventory to be presented by Rolex on
December 31, 2009 is
a. 690,000 c. 672,000
b. 743,000 d. 659,000

101. Espana Ice Cream Factory sells a variety of flavors, which

includes strawberry, mango, chocolate and durian to its
customers. At December 31, 2008, the balance of Espana’s
ending inventory account was P5,000,000, and the “allowance for
inventory writedown” account before any adjustment was
P200,000. Relevant information about the proper valuation of
inventories and the breakdown of inventory cost and market data
at December 31, 2008, are as follows:
Cost Replacem Sales Net Normal
ent Cost Price Realizable Profit
Value
Strawberry 1,000,000 1,100,000 1,450,000 700,000 100,000
Mango 1,500,000 1,200,000 1,750,000 1,600,000 200,000
Chocolate 1,700,000 1,300,000 2,000,000 1,450,000 250,000
Durian 800,000 1,000,000 1,300,000 950,000 250,000
Total 5,000,000 4,600,000 6,500,000 4,700,000 800,000

How much is the loss on inventory writedown to be included in

Espana’s 2008 cost of sales?
a. 550,000 c. 100,000
b. 350,000 d. 200,000

102. Echo Company provided the following data for the current year:
Inventory – January 1:
Cost 3,100,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31:
Cost 4,000,000
Net realizable value 4,200,000
Under the LCM rule, what should be reported as cost of goods in
the income statement?
a. 7,000,000 c. 6,800,000
b. 7,100,000 d. 7,200,000

199
103. Formoso Company manufactures and sells paper envelopes. The
stock of envelopes was included in the closing inventory on
December 31, 2008 at a cost of P60 per pack. During the final
audit, the auditors noted that the subsequent sale price for the
inventory at January 15, 2009 was P50 per pack. Furthermore,
inquiry reveals that during the physical stock take, a water leakage
has created damage to the paper and glue. Accordingly, in the
following week, the entity has spent P5 per pack for repairing and
reapplying glue to the envelopes. The net realizable value and
loss on inventory writedown respectively amount to
a. 50 and 10 c. 60 and 0
b. 45 and 15 d. 55 and 5

104. An extract from Potvin Company’s unadjusted trial balance on

December 31, 2008 appears below. Potvin uses the perpetual
method to record inventory transactions.

Inventory 2,750,000
Sales 12,000,000
Sales return 500,000
Cost of goods sold 8,000,000
Inventory losses 100,000

On December 28, 2008, Potvin recorded a P400,000 credit sale

of goods costing P250,000. These goods were sold FOB
destination terms and were in transit on December 31, 2008.
The goods were however included in the physical count of
3,000,000. The inventory on December 31, 2008 was
determined to have a net realizable value of P2,650,000. All
inventory writedown and losses shall be included in cost of
goods sold. How much should be reported as cost of goods sold
for 2008?
a. 8,100,000 c. 7,750,000
b. 8,200,000 d. 8,350,000

105. Penelope Company began January 1, 2008 with 500 units of

inventory that cost P1,800 each. The sale price of each unit

200
 varied throughout the month. During January, Penelope
completed the following inventory transactions:
Units Unit Unit Sale
Cost Price
January 2 Purchase 200 P 2,500
8 Sale 100 2,000 P3,000
13 Sale 300 2,000 3,100
17 Purchase 500 2,800
22 Sale 250 2,500 3,600
29 Purchase 250 3,300
30 Purchase
return 100
What is Penelope’s ending inventory on January 31, 2008?
a. 1,870,000 c. 2,085,000
b. 1,925,000 d. 1,708,520
106. Avignon Company sells new equipment with a P530,000 list price.
A dissatisfied customer returned one piece of equipment. Avignon
Company determines that the returned equipment can be resold if
it is reconditioned. The expected sales price of the reconditioned
equipment is P450,000. The reconditioning cost is estimated to
be P50,000 and estimated cost to sell is 10% of the selling price.
What is this equipment’s net realizable value?
a. 450,000 c. 400,000
b. 355,000 d. 423,000

107. On June 20, 2008, a fire destroyed the entire uninsured

merchandise inventory of the Adamson Merchandising Company.
The following data are available:

Inventory, January 1 P 300,000

Purchases, January 1 through June 20 2,200,000
Sales, January 1 through June 20 2,400,000
Markup percentage on cost 25%
What is the approximate inventory loss as a result of the fire?
a. 700,000 c. 280,000
b. 580,000 d. 400,000

201
108. Fatima Company’s accounting records indicated the following for
2008:
Inventory, January 1 6,000,000
Purchases 15,000,000
Sales 25,000,000
A physical inventory taken on December 31, 2008 resulted in an
ending inventory of P4,800,000. The gross profit on sales
remained constant at 40% in recent years. Fatima suspects a new
employee may have taken the inventory. Using the gross profit
method, what is the estimated loss on missing inventory at
December 31, 2008?
a. 1,200,000 c. 1,000,000
b. 6,000,000 d. None

109. On October 15, 2008, a fire destroyed all the stock of equipment
of Carly Company in its rented stockroom. The records of the firm
showed the following information:
Inventory, January 1 600,000
Sales, January 1, - October 15 8,800,000
Sales returns and allowance 400,000
Purchases, January 1 – October 15 5,900,000
Purchase returns and allowance 100,000
Cost of stock in display room, not destroyed 210,000
Summary of prior year sales:
2007 2006 2005
Sales 7,400,000 7,000,000 6,000,000
Gross profit 2,590,000 2,100,000 1,500,000
How much is the estimated cost of merchandise lost in the fire?
a. 1,150,000 c. 310,000
b. 1,360,000 d. 520,000

110. Fely Company began operations 3 years ago. On December 1,

2008, a fire broke out in the warehouse destroying all inventories.
The information available is presented below.

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 January 1 December 1
Inventory P 400,000
Accounts receivable 500,000 P 800,000
Accounts payable 150,000 330,000
Collection on accounts receivable, 3,500,000
January 1 to December 1
Payments to suppliers, January 1 to 2,900,000
December 1
Goods out on consignment at 220,000
December 1, at cost

2006 2007 2008

Sales 5,000,000 7,200,000 8,000,000
Gross profit on sales 1,500,000 1,800,000 2,800,000
What is the inventory loss suffered as a result of the fire?
a. 820,000 c. 850,000
b. 600,000 d. 630,000

111. The records of Farah Company showed the following for the
current year:
Cost Retail
Beginning inventory 340,000 640,000
Purchases 4,500,000 7,300,000
Freight in 100,000
Purchase return 150,000 250,000
Purchase allowance 90,000
Departmental transfer in 100,000 160,000
Net markup 150,000
Net markdown 500,000
Sales 6,750,000
Sales allowance 50,000
Sales return 150,000
Employee discount 100,000
Spoilage and breakage 200,000
What is the estimated ending inventory using the conventional retail
method?
a. 360,000 c. 480,000
b. 384,000 d. 600,000

203
112. The records of Chauncey Retailers report the following data for
the 2009:
Sales 8,000,000 Net additional mark
down 250,000
Sales allowance 200,000 Freight on purchases 100,000
Sales returns 650,000 Purchases at cost 4,700,000
Departmental transfer in Departmental transfer in
at cost 290,000 at retail 400,000
Employee discounts Purchase returns at
50,000 cost 200,000
Theft and other losses Purchase returns at
100,000 retail 300,000
Purchases at retail Beginning inventory at
7,200,000 cost 390,000
Net additional mark up Beginning inventory at
350,000 retail 600,000
Using the average retail inventory method, Chauncey’s ending
inventory is
a. 320,000 c. 360,000
b. 345,000 d. 330,000

113. Les Gorges du Verdon Company uses the retail inventory method
to value its merchandise inventory. The following information is
available for the current year:
Cost Retail .
Beginning inventory P 880,000 P 1,600,000
Purchases 9,400,000 14,800,000
Freight-in 200,000 —
Purchase returns 480,000 700,000
Net markups — 300,000
Net markdowns — 1,000,000
Employee discounts — 400,000
Theft and other losses 300,000
Sales — 12,500,000
Sales allowance 250,000
Sales returns 500,000

If the ending inventory is to be valued at the lower of cost or

market, what is the estimated cost of sales of Les Gorges du
Verdon?

204
 a. 8,562,500 c. 8,125,000
b. 8,406,250 d. 8,312,500

Questions 114 through 115

Freida Company uses the retail method of inventory valuation. The

following information is available:
Cost Retail
Beginning inventory 1,250,000 2,000,000
Purchases 6,750,000 8,000,000
Net markup 1,500,000
Net markdown 500,000
Sales 7,700,000
114. What would be the estimated cost of the ending inventory using
FIFO retail?
a. 2,475,000 c. 2,545,000
b. 2,300,000 d. 2,225,000

115. What would be the estimated cost of the ending inventory using
LIFO retail?
a. 2,475,000 c. 2,225,000
b. 2,300,000 d. 2,545,000
116. Packers Company provided the following balances for the year
2008:
Value of biological asset at cost on December 31, 1,800,000
2007
Fair valuation surplus on initial recognition at fair 700,000
value on December 31, 2007
Change in fair value on December 31, 2008 due to 500,000
physical and price change
Decrease in fair value due to harvest 150,000
What is the carrying value of the biological asset on December 31,
2008?
a. 2,500,000 c. 2,850,000
b. 3,000,000 d. 1,800,000

205
Questions 117 through 119
Phoenix Company has a herd of 10 2-year old animals on January 1, 2008.
One animal aged 2.5 years was purchased on July 1, 2008 for 1,080, and one
animal was born on July 1, 2008. No animals were sold or disposed of during
the year. The fair values less estimated point of sale cost per unit were as
follows:
2 – year old animal on January 1, 2008 1,000
2.5 – year old animal on July 1, 2008 1,080
New born animal on July 1, 2008 700
2 – year old animal on December 31, 2008 1,050
2.5 – year old animal on December 31, 2008 1110
New born animal on December 31, 2008 720
3 – year old animal on December 31, 2008 1,200
0.5 – year old animal on December 31, 2008 800
117. The December 31, 2008 balance sheet and the 2008 income
statement should report biological assets and gain arising from
change in fair value, respectively at
a. 14,400 and 2,920 c. 14,000 and 2,370
b. 14,000 and 550 d. 14,000 and 2,920
118. What amount of the gain arising from the change in the fair value
resulted from price change?
a. 2,370 c. 550
b. 2,920 d. 1,230
119. What amount of the gain arising from the change in the fair value
resulted from physical change?
a. 550 c. 2,920
b. 2,370 d. 1,230
120. Elvie Company produced 50,000 kilos of tobacco during the 2008
season. Elvie sells all of its tobacco to Emeralds Company, which
has agreed to purchase the entire production at the prevailing
market price. Recent legislation assures that the market price will
not fall below P30 per kilo during the next two years. The costs of
selling and distributing the tobacco are immaterial and can be
reasonably estimated. Elvie sold and delivered 40,000 kilos at the
market price of P30. Elvie sold the remaining 10,000 kilos during
2009 ay the market price of P40. What amount of revenue should
Elvie Company recognize in 2008?

206
 a. 1,200,000 c. 2,000,000
b. 1,500,000 d. 1,600,000

121. San Francisco Company manufactures bath towels. 60% of the

production are “Class A” which sells for P500 per dozen and 40%
are “Class B” which sells for P250 per dozen. During 2008,
60,000 dozens were produced at an average cost of P360 a
dozen. The inventory at the end of the year was as follows:
2,200 dozens “Class A” @ P360 792,000
3,000 dozens “Class B” @ P360 1,080,000
Total inventory value 1,872,000
Using the relative sales value method which management
considers as a more equitable basis of cost distribution, what is
the net value of the inventory?
a. 1,170,000 c. 1,872,000
b. 1,665,000 d. 2,340,000

122. The following information is available for Fergie Company for the year
2008:
Gross profit 76,800
Cost of goods manufactured 272,000
Beginning inventories
Goods in process 22,400
Finished goods 36,000
Ending inventories
Goods in process 30,400
Finished goods 41,600

How much was the amount of sales of Fergie Company for the
year 2008?
a. 335,200 c. 348,800
b. 347,200 d. 343,200

207