INVENTORIES

FLORES, AXL ROME

DE GUIA, RONJAY
PABLO, LLOYD KRYSNYLL
DIMAPILIS, ADA LOUISE
TAYAG, AMIRAH JOY
 THEORIES

1. Statement 1: Inventories are measured at net realizable value,

but not at the lower of cost.
 Statement 2: Purchases are normally recorded at gross.

a. First Statement is true c. Both Statements are true

b. Second Statement is true d. I don’t know

2. The cost of inventory is the sum of

a. Cost of purchase and cost of conversion.

b. Direct cost, indirect cost and other cost.

c. Cost of purchase, cost of conversion and other cost incurred in

bring the inventory to the present location and condition.

d. Cost of conversion and other cost incurred in bringing the

inventory to the present location and condition.

3. Which of the following should not be taken into account when

determining the cost of inventory?

a. Storage cost of part-finished goods

b. Trade discounts

c. Recoverable purchase taxes

d. Import duties on shipping of inventory inward.

4. Consumable supplies to be consumed in the production process

are reported as

a. Inventory

b. Property, Plant and Equipment

 c. Investment Property

d. Intangible Asset

5. Theoretically, cash discounts permitted on purchased raw

materials should be

a. Added to other income, whether taken or not.

b. Added to other income, only if taken.

c. Deducted from inventory, whether taken or not.

d. Deducted to inventory, only of taken.

6. 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.

b. Cash discounts taken

c. Purchases returns and allowances

d. Cost of transportation for merchandise purchased.

7. Why is inventory included in the computation of net income?

a. To determine cost of goods sold.

b. To determine sales revenue.

c. To determine merchandise returns.

 d. Inventory is not included in the computation of net income.

8. Which of the following should not be included in the inventory at

the end of the reporting period?

a. Goods in transit which were purchased FOB shipping point.

b. Goods in transit which were purchased FOB destination.

c. Goods received from another entity on consignment.

d. Goods in transit to a customer which were sold FOB shipping

point.

9. Sales were the goods are delivered only when the buyer makes
final payment are called

a. Bill and hold sales

b. Sale subject to installation or inspection

c. Consignment sales

d. Layaway sales

10. Which of the following is a characteristic of a perpetual

inventory system.

a. Inventory purchases are debited to a purchase account.

b. Inventory records are not kept for every item.

c. Cost of goods sold is recorded with each sale.

 d. Cost of goods sold is determined as the amount of purchases
less change in inventory.

ANSWER KEY
1. B 6. A
2. C 7. A
3. C 8. A
4. A 9. D
5. C 10. C
 PROBLEM
SOLVING

PROBLEM 1
On October 1, 2019, Valkyrie Company consigned 50 sewing
machines to Matthew Company for sale at P20,000 each and paid
P40,000 in transportation cost. On December 31, 2019, Mathew Peery
reported the sale of 30 sewing machines and remitted P510,000. The
remittance as net of the agreed 15% commission.
What amount should Valkyrie Company recognize as consignment
sales revenue for 2019?

a. P350,000 b. 470,000 c. P510,000 d. P600,000

SOLUTION: D
Consignment sales = Units sold x selling price
= 30 x 20,000
= P600,000

PROBLEM 2
BSA3C Company sold selected merchandise on a consignment basis
during 2020. BSA3C’s 2019 accounting records show the following
information:
Inventory, January 1 P 244,000
Inventory on hand, Dec. 31 290,000
Inventory on consignment, Dec. 31 40,000
Purchases 1,080,000
Freight-in 20,000
Freight-out to customers 70,000
Freight-out to consignees 10,000

What amount should BSA3C report as cost of goods sold in its 2020
statement of comprehensive income?

a. P1,014,000 b. P1,024,000 c. P1,35,000 d.

P2,000,000

SOLUTION: B
Inventory, January 1 P 244,000
Purchases 1,080,000
Freight-in 20,000
Freight-out to consignees 10,000
Cost of goods available for sale 1,354,000
Less: Inventory, Dec. 31
On hand, Dec. 31 290,000
On consignment, Dec. 31 40,000 330,000
Cost of goods sold P1,024,000

PROBLEM 3
Sanamakados, a computer store in Virra Mall, Greenhills,
specializes in the sale of IBM compatibles and software packages and
had the following transactions with one of its suppliers:

Purchases of IBM compatibles P 328,000

Purchases of commercial software package 90,000
Returns and allowances 8,000
Purchase discounts taken 2,700
Purchases were made throughout the year on terms 3/10, n/60. All
returns and allowances took place within 5 days of purchase and prior
to payment of account. How much is the discount lost?

a. P6,900 b. P7,140 c. P9,600 d. P9,840

SOLUTION: C
Purchases of IBM compatibles P 328,000
Purchases of commercial software package
90,000
Returns and allowances (8,000)
Purchase subject to discount P 410,000
Multiply by discount rate .03
Purchase discounts available P 12,300
Purchase discounts taken (2,700)
Discount lost P 9,600

PROBLEM 4
Sanahalls Menswear regularly buys shirts from ChinaShirt
Company and is allowed trade discounts of 20% and 10% from the list
price. Sanahalls purchased shirts on May 9, 2019 and received an
invoice with a list price amount of P50,000 and payments terms of
2/10, n/30. Sanahalls uses the net method of recording purchases.

At what amount should Sanahalls record the purchases?

a. P34,300 b. P35,250 c. P35,280 d. P0

SOLUTIONS: C
Method 1
List Price P50,000
Less: 1st trade discount (20% x P50,000) 10,000
Net total P40,000
Less: 2nd trade discount (10% x P40,000)
(4,000)
Invoice price (Under the gross method) P36,000
Less: Cash discount (2% x P36,000) (720)
Net purchases (Under the net method) P 35, 280

Method 2
List Price P 50,000
Multiply by Net % (1st Trade Discount, 100% - 20%) 80%
Multiply by Net % (2nd Trade Discount, 100% -10%) 90%
 Multiply by Net cash discount (100% - 2%) 98%
Net Purchases P 35, 280

PROBLEM 5
The Mimiyuuh Corporation applies the lower of cost or net
realizable value (NRV) inventory. Data regarding the items in work-in-
process inventory are shown below:

Shorts Pants
Historical cost P 56,640 P 90,000
Selling price 108,800
108,000
Replacement cost 14,400 20,400
Normal profit margin
as percentage of selling price 25%
10%

Under the lower of cost or NRV rule, the pants should be valued at –

a. P76,800 b. P87,600 c. P90,000 d.

P95,400

SOLUTION: B
Cost P90,000
Net Realizable Value:
Selling price P108,000

Less: Estimated cost to complete 20,400 P 87,600

PROBLEM 6
Shane Dawson Company had sales of P5,000,000 during
December 2021. Experience had shown that merchandise equaling 7%
of sales will be returned within 30 days and an additional 3% will be
returned within 90 days. Returned merchandise is readily resalable. In
addition, merchandise equaling 15% of sales will be exchanged for
merchandise of equal or greater value. What amount should be
reported for net sales in the income statement for the month of
December 2021.

a. P4,500,000 b. P4,250,000 c. P3,900,000 d.

P3,750,000

SOLUTION: A
Gross sales P 5,000,000
Estimated sales returns (10% x 5,000,000) (500,000)
Net Sales P 4,500,000

PROBLEM 7
Blackpink Company reported accounts payable on December 31,
2020 at P4,500,000 before any necessary year-end adjustments
relating to the following transactions:

 On December 27, 2020, Blackpink wrote and recorded checks to

creditors totaling P2,000,000 causing an overdraft of P500,000 in
Blackpink’s bank account on December 31, 2020. The checks
were mailed on January 10, 2021.
 On December 28, 2020, Blackpink purchased and received goods
for P750,000, terms 2/10, n/30. Blackpink records purchases and
accounts payable at net amount. The invoice was recorded and
paid January 6, 2021.
 Goods shipped F.O.B destination on December 20, 2020 from a
vendor to Blackpink was received on January 5, 2021. The
invoice cost was P325,000

On December 31, 2020, what amount should be reported as accounts

payable?

a. P7,575,000 . P7,250,000 c. P7,235,000 d. P7,553,000

SOLUTION: C
Accounts payable per book P4,500,000
Undelivered entity checks 2,500,000
Goods purchased and received on December 28, 2020
750,000
Purchase discount (2% x 750,000)
(15,000)
735,000
Total accounts payable P 7,235,000

The undelivered checks should be adjusted as follows:

Cash 2,000,000
Accounts Payable 2,000,000

PROBLEM 8
Weak Company provided the following for the current year:
Central Warehouse Held by
Consignees
Beginning inventory 1,100,000 120,000
Purchases 4,800,000 600,000
Freight in 100,000
Transportation to consignees 50,000
Freight out 300,000 80,000
Ending inventory 1,450,000 200,000

What is the cost of sales for the current year?

a. P4,575,000 b. 4,250,000 c. P4,235,000 d.

P5,120,000

SOLUTION: D
Beginning inventory P 1,220,000
Purchases 5,400,000
Freight in (100,000 + 50,000) 150,000
Goods available for sale 6,770,000
Ending inventory 1,650,000
Cost of Sales P 5,120,000

PROBLEM 9
On December 26, 2023, Babyvalix Company purchased goods
costing P1,000,000. The terms were FOB shipping point. The goods
were received on December 28, 2023. Costs incurred by the entity in
connection with the purchase and delivery pf the goods were normal
freight charge P30,000, handling cost P20,000, insurance on shipment
P5,000 and abnormal freight charge for express shipping P12,000.
What is the total cost of the inventory?

a. P1,575,000 b. P1,250,000 c. P1,055,000 d.

P1,067,000

SOLUTION: C
All costs incurred except abnormal freight

PROBLEM 10
Kumustaka Company provided the following information at the
end of current year.

Finished goods in storeroom, at cost, 2,000,000

including overhead of P400,000 or 20%
Finished goods in transit,
including freight charge of P20,000,
FOB Shipping point 250,000
Finished goods held by salesmen,
at selling price, cost, P100,000 140,000
Goods in process, at cost of materials and direct labor
720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective materials returned to suppliers 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods
110,000
Machine lubricants 60,000

What is the correct amount of inventory?

a. P4,675,000 b. P4,170,000 c. P4,275,000 d.

P4,069,000

SOLUTION: B
Finished goods P 2,000,000
Finished goods held by salesmen 100,000
Goods in process (720,000/80%) 900,000
Materials 1,000,000
Factory supplies (110,000 + 60,000) 170,000
Correct inventory P 4,170,000

PROBLEM 11
ABC Company included the following data:

Materials 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 2,000,000
Finished goods in entity owned retail store 500,000
Finished goods in hands of consignee 240,000
Finished goods in transit to customers 250,000
(FOB destination at cost)
Work in process, beginning 100,000
Office supplies 50,000
Sales 1,000,000
Materials in Transit, shipped FOB shipping point, 330,000
excluding the freight of 30,000

What is the correct amount of inventory?

a. 5,375,000 b. 5,500,000 c. 5,540,000 d. 5,250,000
SOLUTION: B
Materials 1,400,000
Goods in process 650,000
Finished goods in factory 2,000,000
Finished goods in entity owned retail store 500,000
Finished goods in hands of consignee 240,000
Finished goods in transit to customers 250,000
Work in process, beginning 100,000
Materials in Transit (330,000+30,000) 360,000
Correct inventory P 5,500,000

PROBLEM 12
Two See Company incurred the following cost:

Materials 700,000
Storage cost of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchases of taxes 60,000

What amount should the inventory be measured?

a. 880,000 b. 760,000 c. 980,000 d.

940,000

SOLUTION: B
Materials P 700,000
irrecoverable purchase taxes 60,000
Total cost of recovery P 760,000

Problem 13
Sanapumasa Company has incurred the following costs during
the current year:

Cost of Purchases 5,000,000

Import Duties 400,000
Freight and Insurance on Purchases 1,000,000
Salaries of accounting department 600,000
Brokerage Commission 200,000
Other handling cost relating to imports 100,000
Warranty Costs 250,000
What is the total cost of purchases?

a. 5,700,000 b. 6,100,000 c. 6,700,000 d. 6,500,000

SOLUTION: C
Cost of Purchases 5,000,000
Import Duties 400,000
Freight and Insurance on Purchases 1,000,000
Other handling cost relating to imports 100,000
Warranty Costs 250,000
Total cost of Purchases 6,700,000

PROBLEM 14
Star Company has the following information pertaining to its
merchandise inventory as of Dec. 31,2014:

Inventory on hand
(including merchandise received on consignment) P200,000
Inventory purchased with a buypack agreement P100,000
Merchandise in transit, FOB shipping point,
including P5,000 freight cost P155,000
Merchandise in transit, free alongside,
including delivery cost alongside
the vessel of P6,000 but excluding the
cost of shipment of P3,000 P250,000
Merchandise n Transit, CIF
(Includes insurance costs and freight of P8,000) P175,000

What amount should the Star Company report as value of its inventory
in its 2014 statement of financial position?

a. P749,000 b. P757,000 c. P763,000 d.

P857,000

SOLUTION: B
Inventory on hand (200,000-20,000) 180,000
Merchandise in transit, FOB shipping point 155,000
Merchandise in transit, FAS (250,000-6,000+3,000) 247,000
Merchandise in transit,CIF 175,000
Correct value of inventory 757,000

PROBLEM 15
Kuya A Company had the following consignment transactions
during Dec. 2020:

Inventory shipped on consigment to C Company

36,000
Freight paid by B 1,800
Inventory received on consignment from D Company 24,000
Freight paid by D 1,000

No sales of consigned goods were made through December 31,202.

What amount of consigned inventory should be included in Kuya A’s

Statement of Financial Position?
a. 24,000 b. 25,000 c. 36,000 d. 37,800

SOLUTION: D

Inventory shipped on consigment to C Company

36,000
Freight paid by B 1,800
Total inventory on consignment 37,800

PROBLEM 16
The following information applies to Narra company for 2019:

Merchandise for resale 400,000

Freight in 10,000
Freight out 5,000
Purchase Returns 2,000

How much is Narra’s 2019 inventoriable cost?

a. 400,000 b. 403,000 c. 408,000 d. 413,000

SOLUTION: C
Purchases 400,000
Freight in 10,000
Purchase Returns 2,000
Total inventoriable cost 408,000

PROBLEM 17 - 20
Boo Company accumulated the following data for the current
year.
Raw materials, beginning inventory 90,000 units @ P7.00
Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50

The entity transferred 195,000 units of raw materials to work in

process during the year.

Work in process, beginning 50,000 units @ P14 .00

Direct Labor 3,100,000
Manufacuring Overhead
2,950,000
Work in process, ending 48,000 units @ P15.00

The entity used the FIFO method for valuing inventory.

17. What is the cost of raw materials used?

a. 1,485,000 b.2,250,000 c. 1,530,000 d. 3,015,000
18. What is the total manufacturing cost?
a. 8,300,000 b. 7,535,000 c. 7,580,000 d. 9,065,000
19. What is the cost of goods manufactured for the current
year?

a. 7,535,000 b. 8,235,000 c. 7,515,000 d. 8,280,000

20. What is the cost of total purchases?

a. 1,620,000 b. 2,250,000 c. 1,500,000 d. 1,485,,000

SOLUTION:
17. 1 and 4
Purchases (75,000 x 8.00) 600,000
Purchases (120,000 x 8.50) 1,020,000
Total Purchases A. 1,620,000

18. Beginning raw materials (90,000 x 7) 630,000

Purchases 1,620,000
Raw materials available for use 2,250,000
Ending Raw materials (765,000)
Raw materials A. 1,485,000
19. Raw materials 1,485,000
Direct labor 3,100,000
Manufacturing overhead 2,950,000
Total Manufacturing Cost B. 7,535,000

20. Total manufacturing cost 7,535,000

Beginning work in process 700,000
Total work in process 8,235,000
Ending working in process 720,000
Cost of goods manufactured C. 7,515,000
PROBLEM 21

Coco Nutnut Company incurred the following costs:

Materials 700,000

Storage costs of finished goods 180,000

Delivery to customers 40,000

Irrecoverable purchases taxes 60,000

At what amount should the inventory be measured?

a. 880,000 b. 760,000 c. 980,000 d. 940,000

SOLUTION: B

Materials: 700,000
Irrecoverable purchase taxes 60,000
Total cost of inventory 760,000

PROBLEM 22

Kyeong Seok Corp provided the following for the current year.

Central Warehouse Held by consignees

Beginning Inventory 1,400,000 150,000
Purchases 5,100,000 700,000
 Freight-in 400,000
Transportation to
Consignees 80,000
Freight out 500,000 120,000
Ending Inventory 1,750,000 400,000

What is the cost of goods sold for the current year?

a. 6,220,000 b. 4,900,000 c. 5,680,000 d. 5,150,000

SOLUTION: C

Beginning Inventory P1,550,000

Purchases 580,000
Freight in 480,000
Total Goods Available for Sale 7,830,000
Ending Inventory (2,150,000)
Cost of Goods Sold P5,680,000

PROBLEM 23

Hotdog Company took a physical inventory at the end of the year

and determined that P 1,600,000 of good was on hand. In addition, the
entity determined that P 300,000 of goods purchased FOB Destination
were included in the physical count and that the entity had P 100,000
of goods held under consignment.

What amount should be recorded as inventory at the end of the year?

a. 2,000,000 b. 1,600,000 c. 1,900,000 d. 1,700,000

SOLUTION: B
Ending Inventory 1,600,000
PROBLEM 24
Bebe Niya Company used the perpetual system. The following
information has been extracted from the records about one product:
Units Unit Cost Total Cost
Jan 1 Beginning balance 9,000 75.00 675,000
6 Purchase 4,000 75.50
302,000
Feb 5 Sale 11,000
Mar 5 Purchase 12,000 78.50
942,000 8 Purchase Return 800 78.50
62,800
Apr 10 Sale 8,000
30 Sale Return 400

If the FIFO cost flow method is used, what is the cost of inventory on
April 30?

a. 439,600 b. 422,800 c. 436,900 d. 428,200

SOLUTION: A

Beginning Inventory in units P 9,000

Net Purchases in units (4,000 + 12,000 – 800) 15,200

Total Goods available for sale in units 24,200

Quantity of goods sold (11,000 + 8,000 – 400) ( 18,600
)
Ending Inventory in units 5,600
Multiply by unit cost 78.50
Cost of Inventory, April 30 P 439,600

PROBLEM 25

Freeda Co. recorded the following data pertaining to raw materials

during the month of May 2020:

Units
Date Received Cost Issued On hand
5/1 Inventory 210 8,500
5/8 Issue 4,500 4,500
5/20 Purchase 12,500 250 17,000
 What is the moving average unit cost of the inventory on May
31?

a. 250 b. 230 c. 240 d. 220

SOLUTION: C
Units Unit Cost Total
Cost
May 1 8,500 210
1,785,000
8 (4,500) 210
( 945,000)
4,000 210 840,000
20 12,500 250 3,125,000
16,500 240 3,
965,000

PROBLEM 26 – 29
Lavarn Pa Company reported that a flood recently destroyed
many of the financial records. The entity used an average cost
inventory valuation system. The entity made a physical count at the
end of each month in order to determine monthly ending value. By
examining various documents, the following data are gathered.

Ending Inventory at August 30 60,000 units

Total cost of units available for sale in August 1,452,100
Cost of goods sold during August 1,164,100
Cost of beginning inventory, August 1 4.00/ unit
Gross Profit on sale for August 935, 900

Units Unit Cost Total Cost

July 5 55,000 5.10 280,500
 11 53,000 5.00 265,000
15 45,000 5.50 247,500
16 47,000 5.30 249,100
Total Purchases 200,000 1,042,100

26. What is the number of units on August 1

a. 102,500 b. 140,000 c.76,500 d. 60,000

SOLUTION: A

Cost of units available for sale for August 1,452,100

Purchases for August (1,042,100)

Cost of inventory – August 1 410,000

Number of units _ August 1 102,500

27. How many units were sold during the month of August?

a. 302,000 b. 140,000 c. 242,500 d. 260,000

SOLUTION: C

August 1 inventory 102,500

Purchases of July 200,000

Total units available for sale for August 302,500

August 30 inventory (60,000)

Units sold during the month 242,500

28. What is the cost of inventory on August 31?

a. 288,000 b. 410,000 c. 312,600 d. 240,000

SOLUTION: A

Average unit cost (1,452,100/302,500) 4.80

Inventory – August 30 (60,000 x 4.80) 288,000

29. Jowable Company purchased a plot of ground for

P18,000,000. The entity also paid an independent appraiser for
the land the amount of P 500,000.

The land was developed as residential lots at a total cost of

P 41,500,000.

Number of lots Sales Price per lot

Highland 20 1,000,000
Midland 40 750,000
Lowland 100 500,000

What total cost should be allocated to Highland lots?

a. 12,000,000 b. 11,900,000 c. 8,400,000 d.

8,300,000

SOLUTION: A
Sales Price Fraction
Total Cost
Highland (20 x 1,000,000) 20,000,000 20/100
12,000,000
Midland (40 x 750,000) 30,000,000 30/100
18,000,000
Lowland (100 x 500,000) 50,000,000 50/100
30,000,000
100,000,000 60,000,000
PROBLEM 30

Mamshii Corp determined the following information for an inventory at

year-end:

Historical Cost 2,000,000

Current Replacement Cost 1,400,000
Net Realizable Value 1,800,000
Net Realizable Value less normal profit margin 1,700,000
Fair Value 1,900,000

What amount should be reported as inventory at year-end?

a. 1,400,000 b. 1,700,000 c. 1,800,000 d.

1,900,000

SOLUTION: C

Historical Cost 2,000,000

Net Realizable Value 1,800,000
LCNRV 1,800,000

PROBLEM 31

Love Marie Co. records show the following:

a. Inventory on store display, per physical count 90
000
b. Inventory stocked in stockroom, per physical count 250
000
c. Inventory sold to the customer under a bill and hold
arrangement, included in the stock of
inventory in stockroom 40 000
d. Inventory pledged as collateral security
for a bank loan, not included in the count 25 000
e. Inventory purchased under a lay away sale
plan, physical possession is not yet obtained
until full payment of the purchase price 98 000
f. Inventory sold wherein Love Marie Co. is
 obligated to repurchase the inventory
at a future date, not included in the physical count 60
000
What is the total balance of inventory?

a. 385 000 b. 425 000 c. 483 000 d. 405 000

SOLUTION: A

Inventory on store display P 90,000

Inventory in stockroom 250,000
Inventory sold under bill and hold (40,000)
Inventory pledged as a collateral security 25,000
Inventory sold wherein the co. should repurchase 60,000
Total Inventory P 87,600

PROBLEM 32
On December 1, 2018, Byers Store received 1,000 units of
windbreakers on consignment Will Co. Will’s cost of the windbreakers
was P1,600 each and they were priced to sell at P2,000. Transportation
cost of P2,000 was paid by Byers. As of December 31 50 units were
returned to the consignor and 200 units are still held by the consignee.
Commission rate as agreed upon between contracting parties was 12%
on all sales to be made by Will Co. In its December 31, 2018 balance
sheet, what amount should Byers report as payable for consigned
goods?

a. P1,320,000 b.1,500,000 c. P1,318,000 d.

P2,000,000

SOLUTION: C

750 x 2,000 = 1,500,000

Commission 1,500,000 x 12% = (180,000)
Payable to consignor = ( 2,000)
Payable for Consigned goods P 1,318,000

PROBLEM 32
On October 1, 2018, El Even Company consigned 50 freezers at a
unit cost of P 15,000 to Maxx Co. for sale at P20,000 each and paid
P20,000 in transportation cost. On December 31,2018, Maxx reported
the sale of the 25 freezers and returned 10 units. Cost paid by the
consignee on the returned units was P4,000. Amount due to consignor
was remitted on the same date. Commission rate as agreed upon was
15%. What amount of inventory on consignment and net income
related to the sold units, respectively, should El Even report on
December 31, 2018?

a. P225,000 and P36,000 c. P235,000 and P40,000

b. P231,000 and P32,000 d. P375,000 an P44,000

SOLUTION: B

Transportation cost P20,000/50 freezers = 400,000

Unit Cost = 15,000
Cost of Ending Inventory P 15,400
(50-25-10) X 15
Total Inventory on consignment P 231,000

Sales P 500,000
Cost of Sales (385,000)
Commission Expense
( 75,000)
Cost of Returned Units ( 8,000)
Net Income P 32,000

PROBLEM 33
On December 10, 2019, Rolex Company purchase goods with an
invoice price of P200,000. The terms were FOB Shipping Point. Some of
the cost incurred in connection with the sale and delivery of the goods
were as follows: Packaging for shipment, P2,000; Shipping, P3,000 and
special handling charges, P4,000. On December 15, 2019, Rolex
Company received a P5,000 rebate in relation to the above purchases.
In the December 31, 2019 statement of financial position, what
amount of these goods should be included in inventory?

a. P205,000 b. P207,000 c. P195,000 d.

P198,000

SOLUTION: C

Purchases P 204,000
Shipment of Goods (2,000+3,000+4,000)
9,000
P 195,000
PROBLEM 34

During January 2019 Del Valle Co. recorded the following

information pertaining to its inventory

Units Units cost Total cost

January 1 balance 20,000 P10 P200,000

January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchases 14,000 15 210,000
January 31 sales 10,000

Using the FIFO method, what amount of inventory should Del

Valle Co. report in its January 31, 2018 statement of financial position?

a. P240,000 b. 260,000 c. P280,000 d.

P282,000

SOLUTION: D

20,000 = 14,000 x 15 = P210,000

= 6,000 x 12 = 72,000
P 282,000

PROBLEM 35
Celeste Corporation has two products in its work in process
ending inventory, each accounted for at the lower of cost or net
realizable value. Specific data with respect to each product follows.

Product #1 Product #2
Selling Price P 60 P130
Historical cost 40 70
Cost to sell 10 26
 Cost to complete 15 40

In pricing its ending inventory using the lower of cost or net

realizable value, what unit values should Celeste use for product #1
and #2, respectively?

a. P35 and P64 c. P40 and P70

b. P50 and P104 d. P45 and P90

SOLUTION: A

Product #1 Product #2
Selling price 60 130
Less: Cost to sell 10 26
Cost to complete 15 40
LCNRV 35 62

PROBLEM 36 - 37
The following information pertains to LodgeCompany at December 31,
2019
Inventory, January 1 1,400,000

Purchase during the year 6,600,000

Inventory, December 31, cost (NRV P1,000,000)

1,200,000

Before the year 2018 application of the lower of cost or NRV rule
never produced a net to write down the company’s inventory to an
amount below cost.

Question 1: What is the cost of goods sold assuming the company

applies the lower of cost or NRV rule using a loss account and valuation
allowance account?

a. P6,500,000 b. P6,800,000 c. P7,000,000 d. P8,000,000

SOLUTION: B

Beginning Inventory P 1,400,000

Purchases 6,600,000
TGAS 8,000,000
Ending Inventory (1,200,000)
Cost of Goods sold P 6,800,000

Question 2: What is the cost of goods sold if the company use direct
method?
a. P6,500,000 b. P6,800,000 c. P7,000,000 d. P8,000,000

SOLUTION: C

Beginning Inventory P 1,400,000

Purchases 6,600,000
TGAS P 8,000,000
Ending inventory (NRV) (1,000,000)
Cost of Goods Sold P7,000,000

PROBLEM 38
On January 1, 2018 the entity purchased raw materials to be
consumed in the production process for P550,000 including P50,000
refundable purchase taxes. The purchase price was funded by raising a
loan of P555,000 (including P5,000 loan-raising fees). The loan is
secured by the inventories. During January 2018 the entity designed
the corporate gifts for the customer, the design costs included: Cost of
external designer, P7,000 and Labor Cost, P3,000. During February
2018, the entity’s production team developed the manufacturing
technique and made further modifications necessary to the inventories
to the conditions specified in the agreement. The following cost were
incurred in the testing phase; Materials, net P3,000 recovered from the
sale of scrapped output, P21,000; Labor P11,000 and depreciation of
plant used to perform the modifications, P5,000. During February 2018
the entity incurred the following additional costs in manufacturing the
customized corporate gifts; consumable store P55, 000; Labor P65,000
and depreciation of plant used to perform the modifications, P15,000.
The customized gifts were ready for sale on March 1, 2018. No
abnormal wastage occurred in the development and manufacture of
the corporate gifts. What is the cost of the finished inventory of
customized gifts?

a. P555,000 b. P645,000 c. P682,000 d.

P692,000

SOLUTION: C

January Materials (excluding 5,000 refundable tax) P 500,000

Labor Cost 7,000
3,000
February Materials 21,000
Labor 11,000
Overhead 5,000
55,000
Labor 65,000
Overhead 15,000
Cost of the finished inventory P 682,000

PROBLEM 39
During 2019, Arashi Company signed a non-cancellable contract
to purchase 1,000 sacks of rice at P900 per sack with delivery to be
made in 2020. On December 31, 2019 the price of rice had fallen to
P850 per sack. On May 9, 2020 the company accepts delivery of rice
when the price is P880 per sack.

In December 31,2019 Statement of Comprehensive Income, what

amount of loss on purchase commitment should be included?

a. None b. 20,000 c. 30,000 d. 50,000

SOLUTION: D
Loss on purchase commitment [1,000 x (900-850)].

PROBLEM 40
Elaine palaypay purchase merchandise with a list price of
100,000 subject to a trade discount of 20% and a credit terms of 2/10
n/30 at what amount should Elaine record the cost of this merchandise
if the gross method is used.

a. 100,000 b. 80,000 c.98,000 d. 78,400

SOLUTION: C.
List Price 100,00
Multiply by: 0
Cost of Merchandise – Gross Method 80%
80,000

PROBLEM 41-42
Bhu-Bhu company is a wholesaler of school supplies. The activity
for yellow paper during August is shown below:
Date Transaction Units Cost

Aug. 1 Inventory 1000 25.00

7 Purchase 2500 26.00

13 Sales 2200

17 Purchase 1300 26.50

22 Sales 1500

41. If Bhu-Bhu Company uses a FIFO periodic inventory system, the

ending inventory of yellow paper at August 31 is reported as

a. 29,150 b. 30,150 c. 29,650 d. 30,650

SOLUTION: A
Ending inventory is 1100 x 26.50= 29,150

42. If Bhu-Bhu company uses the average cost method to account for
inventory of yellow paper at August 31 is reported as.

a. 28,632 b. 28,523 c. 28,532 d. 28,623

SOLUTION: B
TGAS(pesos)/TGAS(units) x Ending inventory

124,450/4,800 x 1,100= 28523

PROBLEM 43-46
Compute for the missing amount in the table below using t-account

Inventory beg. Net Purchase Cost of Sale Inventory End

5. 20,000 396,000 324,000 ?
6. 30,000 ? 128000 18,000
7. ? 200,000 109,000 60,000
8. 25,000 50,000 ? 10,000

43. Inventory End is

a. 92,000 b. 72,000 c. 82,000 d. 102,000

SOLUTION: A
Inventory
Beg 20,000 324,000 sale
Purchase 396,00
0

end 92,000

44. Net Purchase is

a. 117,000 b. 115,000 c. 116.000 d. 114,000

SOLUTION: C
Inventory
Beg 30,000 128,000 sale
Purchase 116,00
0

end 18,000

45. Inventory beg. Is

a. 35,000 b. 27,000 c. 31,000 d. 29,000

SOLUTION: C
Inventory
Beg 31,000 109,000 sale
Purchase 200,00
0
 End 60,000

46. Inventory end is

a. 65,000 b. 56,000 c. 57,000 d. 66,000

SOLUTION: A Inventory
Beg 25,00
0 65,000 sale
Purchase 50,00
0

PROBLEM end 10,00 47-48

Beginning Inventory 0 45000
Purchase 65000
Purchase return and allowances 13000
Purchase discount 5000
Frieght in ?
Cost of goods available for sale 94000
Ending inventory ?
Cost of goods sold 56000

47. How much is the freight in?

a. 3000 b. 4000 c. 2000 d. 1000

SOLUTION: C

Beginning Inventory 45000

Add:Purchase 65000
Less:Purchase return and allowances 13000
Less:Purchase discount 5000
Total 92000
Less:Cost of goods available for sale 94000
Freight in 2000

48. How much is the ending inventory?

a. 83,000 b. 38,000 c. 24,000 d. 42,000

SOLUTION: B
TGAS 94000
Less:COGS 56000
Ending Inventory 38000

PROBLEM 49-50
Water Company is a wholesaler of scented candles. The activity
for item number 1234 during June is presented below:

Date Transaction Units Cost

June 01 Inventory balance 6,000 P
20.00
04 Purchases 9,000 24.00
12 Sales 10,800
19 Purchases 14,400 26.00
22 Sales 11,400
29 Purchases 4,800 27.00
Question 1: Under the FIFO periodic inventory system, how much is
the ending inventory of the item #1234 at June 30?

a. P 280,800 b. 278,400 c. 302,400 d. 316,800

SOLUTION: D
Total units available for sale (beginning plus purchases)
34,200
Less: Units sold 22,200
Number of units at the end of the month 12,000

FIFO – upward accountability of units

(Starting from latest acquisition then upward)

Units Unit Cost Cost

From June 19 balance 7,200 x P 26 P

187,200
From June 29 purchases 4,800 x P 27 129,600
Ending inventory 12,000 P
316,800

Pas 2, paragraph 27 states that the FIFO formula assumes that the
items of inventory that were purchased or produced first are sold first
and consequently the items remaining in inventory at the end of the
period are those most recently purchased or produced.

Question 2: Under weighted average cost periodic inventory system,

how much is the ending inventory of item #1234 at June 30?

a. 278,400 b. 294,720 c. 302,400 d.316,800

SOLUTION: B
Units Cost per Unit Total Cost
Inventory, beginning 6,000 P 20.00 P 120,000
Purchases:
June 4 9,000 24.00 216,000
June 19 14,400 26.00 374,000
June 29 4,800 27.00 129,600
Total 43,200 P 840,000

Average unit cost = P 840,000 ÷ 34,200 P 24.56

Total units available for sale 34,200

Less: units sold (10,800 ÷ 11,400) 22,200

Units end 12,000

Inventory, June 30 (12,000 x P 24.56) P 294, 720

PAS 2 paragraph 27 states that, under the weighted average cost

formula, the cost of each item is determined from the weighted
average of the cost of similar items at the beginning of a period and
cost of similar items purchased or produced during the period. The
average may be calculated on a periodic basis, or as each additional
shipment is received, depending upon the circumstances of the entity.