Instructions: The following are theory and computational questions covering today’s (March 03, 2018) topics.

Answer each
carefully. Write your answers in a sheet of paper. For computational, show your solution and encircle your final answer.
Deadline will be on Monday, March 5, 2018, 5PM.

TRUE OR FALSE
1. Work in process inventories include only the costs of direct materials and direct labor.
2. When a perpetual inventory system is used, physical counts should be made periodically to confirm the inventory
balances on the books.
3. Abnormal shortages or thefts of inventory should be reported separately as operating expenses.
4. Normal inventory adjustments for shrinkage and breakage are reported as adjustments to cost of goods sold.
5. When the terms of a sale are FOB shipping point, goods in transit at year-end should be included in the inventory of the
seller.
6. Title to goods shipped FOB destination remains with the seller from the shipping point to the destination point.
7. Goods held by customers on approval should be excluded from the seller's inventory.
8. Consigned goods are reported by the consignor in inventory at the sum of their cost, handling and shipping costs, and
the estimated gross profit.
9. The gross method of accounting for purchase discounts reflects the fact that discounts not taken are in effect credit-
related expenditures incurred for failure to pay within the discount period.
10. The specific identification method is a highly objective approach to matching historical costs with revenues.
11. With FIFO, inventories are reported on the balance sheet at or near their current value.
12. Unlike other inventory cost methods, the average cost approach provides the same unit cost for items of equal utility.
13. FIFO provides income tax savings during periods of falling prices.
14. Overstating ending inventory will affect the balance sheet, but not the income statement.
15. The lower-of-cost-or-market method may be applied to each inventory item, to major classes or categories of inventory
items, or to the inventory, as a whole.
16. Overstating ending inventory in Period 1 will cause ending inventory in Period 2 to be understated by the same amount.

MULTIPLE CHOICES THEORY

17. The factor which determines whether or not goods should be included in a physical count of inventory is
A. physical possession. C. management's judgment.
B. legal title. D. whether or not the purchase price has been paid.

18. If goods in transit are shipped FOB destination

A. the seller has legal title to the goods until they are delivered.
B. the buyer has legal title to the goods until they are delivered.
C. the transportation company has legal title to the goods while the goods are in transit.
D. no one has legal title to the goods until they are delivered.

19. ABC Company's goods in transit at December 31 include:

sales made purchases made
(1) FOB destination (3) FOB destination
(2) FOB shipping point (4) FOB shipping point
Which items should be included in ABC's inventory at December 31?
A. (2) and (3) C. (1) and (3)
B. (1) and (4) D. (2) and (4)

20. Under a consignment arrangement, the

A. consignor has ownership until goods are sold to a customer.
B. consignor has ownership until goods are shipped to the consignee.
C. consignee has ownership when the goods are in the consignee's possession.
D. consigned goods are included in the inventory of the consignee.

21. Inventoriable costs include all of the following except the

A. freight costs incurred when buying inventory.
B. costs of the purchasing and warehousing departments.
C. cost of the beginning inventory.
D. cost of goods purchased.

22. Inventoriable costs may be thought of as a pool of costs consisting of which two elements?
A. The cost of beginning inventory and the cost of ending inventory
B. The cost of ending inventory and the cost of goods purchased during the year
C. The cost of beginning inventory and the cost of goods purchased during the year
 D. The difference between the costs of goods purchased and the cost of goods sold during the year

23. Of the following companies, which one would not likely employ the specific identification method for inventory costing?
A. Music store specializing in organ sales C. Antique shop
B. Farm implement dealership D. Hardware store

24. Which of the following statements is true regarding inventory cost flow assumptions?
A. A company may use more than one costing method concurrently.
B. A company must comply with the method specified by industry standards.
C. A company must use the same method for domestic and foreign operations.
D. A company may never change its inventory costing method once it has chosen a method.

25. A company uses the periodic inventory method and the beginning inventory is overstated by P4,000 because the ending
inventory in the previous period was overstated by P4,000. The amounts reflected in the current end of the period
balance sheet are
Assets Owner’s Equity
A. Overstated Overstated
B. Correct Correct
C. Understated Understated
D. Overstated Correct

26. Overstating ending inventory will overstate all of the following except
A. assets. C. net income.
B. cost of goods sold. D. owner's equity.

PROBLEM SOLVING/ COMPUTATIONAL

27. ABC Company suffered a loss of its inventory on March 28 due to a fire in its warehouse. As a basis for filing a claim
with its insurance company, ABC Company developed the following information:
March net sales through March 28 P360,000
Beginning Inventory, March 1 150,000
Merchandise purchases through March 28 180,000
The company has experienced an average gross profit rate of 35% in the past and this rate appears to be appropriate
in the current period. Determine the estimated cost of ending inventory destroyed by fire.

28. The balance in ABC Co.'s accounts payable account at December 31, 2014 was P700,000 before any necessary year-
end adjustments relating to the following:
• Goods were in transit to ABC from a vendor on December 31, 2014. The invoice cost was P40,000. The goods
were shipped f.o.b. shipping point on December 29, 2014 and were received on January 4, 2015.
• Goods shipped f.o.b. destination on December 21, 2014 from a vendor to ABC were received on January 6, 2015.
The invoice cost was P25,000.
• On December 27, 2014, ABC wrote and recorded checks to creditors totaling P30,000 that were mailed on January
10, 2015.
In ABC's December 31, 2014 balance sheet, the accounts payable should be
A. P730,000 B. P740,000. C. P765,000. D. P770,000.

29. On June 1, 2014, ABC Corp. sold merchandise with a list price of P20,000 to Linn on account. ABC allowed trade
discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made f.o.b. shipping point. ABC prepaid
P400 of delivery costs for Linn as an accommodation. On June 12, 2014, ABC received from Linn a remittance in full
payment amounting to
A. P10,976. B. P11,368. C. P11,376. D. P11,196.

30. ABC Company sells TVs. The perpetual inventory was stated as P28,500 on the books at December 31, 2013. At the
close of the year, a new approach for compiling inventory was used and apparently, a satisfactory cut-off for preparation
of financial statements was not made. Some events that occurred are as follows.
A. TVs shipped to a customer January 2, 2014, costing P5,000 were included in inventory at December 31, 2013.
The sale was recorded in 2014.
B. TVs costing P12,000 received December 30, 2013, were recorded as received on January 2, 2014.
C. TVs received during 2013 costing P4,600 were recorded twice in the inventory account.
D. TVs shipped to a customer December 28, 2013, f.o.b. shipping point, which cost P10,000, were not received
by the customer until January, 2014. The TVs were included in the ending inventory.
E. TVs on hand that cost P6,100 were never recorded on the books.
Compute the correct inventory at December 31, 2013.
31. During 2018, Alyssa Company paid P4,000,000 cash and traded inventory which had a carrying amount of P15,000,000
and fair value of P16,000,000, for other inventory in the same line of business with a fair value of P20,00,000. Alyssa
Company should report the new inventory received in exchange at
A. 20,000,000 B. 16,000,000 C. 15,000,000 D. 19,000,000

32. On December 26, 2018, Karen Company purchased goods costing P5,000,000. The freight term is FOB destination.
Some of the costs incurred in connection with the sale and delivery if the goods were:
Packaging for shipment 100,000
Shipping 200,000
Special handling charges 300,000
These goods were received on December 31, 2018. In the December 31, 2018 balance sheet, what amount of cost for
these goods should be included in inventory?
A. 5,000,000 B. 5,600,000 C. 5,300,000 D. 5,500,000

33. At the beginning of the year, Melanie Realty embarked on a real estate development project involving single family
dwellings. On July 1, 2018, Melanie Reality purchased a track of land for P48,000,000. Melanie incurred additional cost
of P12,000,000 during the remainder of 2018 in preparing the land for sale as follows:
Lot Class Number of lots Sales price per lot
A 100 480,000
B 100 320,000
C 200 200,000
What amount of cost should be allocated to Class A lots?
A. 24,000,000 B. 20,000,000 C. 19,200,000 D. 48,000,000

34. A listing of the Emma Company's inventory items at the end of 2018 totals P950,000. Included in this amount are the
following items:
Merchandise in transit as of 12/12/2018, purchased FOB shipping point 68,000
Goods held by Emma as consignee, from Ronald 50,000
Goods out on consignment, at cost plus 50%
Markup on cost plus P1,000 delivery charge 61,000
What is the peso amount of Emma's 2018 ending Inventory that should be reported on the balance sheet?
A. 831,000 B. 862,000 C. 879,000 D. 880,000

35. The unadjusted physical inventory of Erzil Company at December 31, 2018 was P5,000,000. Other information follows:
 Goods were received and recorded on January 4, 2019 with cost of P500,000. These goods were shipped by
suppliers on December 29, 2018, FOB shipping point.
 Goods in the warehouse costing P1,500,000 were billed to the customer FOB shipping point on December 29,
2018. The goods were included in inventory because they were shipped on January 3, 2019.
How much should Erzil report as inventory on its December 31, 2018 balance sheet?
A. 5,500,000 B. 7,000,000 C. 4,000,000 D. 5,000,000

36. Moneba Company bought merchandise on January 2, 2018 from Lynn Company costing P15,000; terms, less 20%,
20% down payment, balance 2/10, n/30. Two days after, P2,000 worth of merchandise was returned due to wrong
specification. Moneba Company paid the account within the discount period. How much Moneba Company paid to
Lynn Company?
a. P 7,600 b. P 7,448 c. P 7,408 d. P 7,360

37. In an annual audit of Tristan John Company, you find that a physical inventory on December 31, 2018, showed
merchandise with a cost of P440,000 was on hand at that date. You also find the following transactions near the dosing
date.
A. A special machine, fabricated to order for a customer casting 15,000, was finished and specifically segregated
in the back part of the shipping room on December 31, 2018. The customer was billed on that date and the
machine excluded from inventory although it was shipped on January 4, 2019.
B. Merchandise costing P3,000 was received an January 3, 2019, and the related purchase invoice recorded
January 5. The invoice showed the equipment was made on December 29, 2018, f.o.b. destination.
C. A packing case containing a product costing P34,000 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 slipping instructions".
Your investigation revealed that the customer's order was dated December 18, 2018 but that the case was
shipped and the customer billed on January 10, 2019.
D. Merchandise received on January 6, 2019, costing P6,000 was entered in the purchase journal on January 3,
2019. The invoice showed shipment was made f.o.b. supplier’s warehouse on December 31, 2018.
 E. Merchandise costing P7,000 was received on December 28, 2018, and the invoice was not recorded. You
located it in the hands of the purchasing agent and it was marked on consignment.
The amount of inventory that should appear on the balance sheet at December 31, 2018 is
A. 480,000 B. 495,000 C. 487,000 D. 502,000

38. Barlow Company's Accounts Payable balance at December 31, 2018, was P1,800,000 before considering the following
transactions:
• Goods were in transit from a vendor to Barlow on December 31, 2018. The invoice price was P100,000, and the
goods were shipped FOB shipping point on December 29, 2018. The goods were received on January 4, 2019.
• Goods shipped to Barlow FOB shipping point on December 20, 2018, from a vendor were lost in transit. The invoice
price was P50,000. On January 5, 2019, Barlow filed a P50,000 claim against the common carrier.
In its December 31, 2018, balance sheet, Barlow should report Accounts Payable of

Listed below are some items of inventory from Anecito Company that are in question during the audit. The company stores
a substantial portion of the merchandise in a separate warehouse and transfer damaged goods to a special inventory
account.

1. Items in receiving department returned by customer, no communication received from customer 20,000
2. Items ordered and in receiving department, invoice not yet received from supplier 50,000
3. Items counted in warehouse by the inventory crew 70,000
4. Invoice received for goods ordered, goods shipped but not received (Anecito Company pays freight) 5,000
5. Items, shipped today, fob destination, invoice mailed to customer 5,000
6. Items currently used for window displays 10,000
7. Items on counter for sale per inventory count [not in (3)] 90,000
8. Items in shipping department, invoice not mailed to customer 6,000
9. Items in receiving department, refused by Anecito because of damage [(not in (3)] 3,000
10. Items shipped today, fob shipping point, invoice mailed to customer 4,000
11. Items included in warehouse count, damaged, not returnable 8,000
12. Items included in warehouse count, specifically crafted and segregated for shipment to customer in
five days per sales contract, with return privilege. 18,000

Question:
39. If the recorded inventory in the balance sheet is P289,000, the year-end inventory will be overstated by:
a. P 41,000 b. P 23,000 c. P 18,000 d. P 3,000

40. The following should be included from the inventory, except:

a. Inventory shipped today, f.o.b. shipping point, invoice mailed to customer.
b. Inventory counted in warehouse by the inventory crew.
c. Inventory shipped today, f.o.b. destination, invoice mailed to customer.
d. Inventory in warehouse count, specifically crafted and segregated for shipment to customer with return privilege.

41. The inventory per audit at year-end is:

a. P 286,000 b. P 271,000 c. P 266,000 d. P 248,000

FOR THE NEXT 2 REQUIREMENTS The Clayton Music Company was formed on December 1, 2014. The following
information is available from Clayton's inventory records:
Units Unit Cost
Balance at January 1, 2015 ................ 4,800 P14.25
Purchases:
January 17, 2015 .......................... 9,000 15.00
March 12, 2015 ............................ 7,200 16.50
June 23, 2015 ............................. 3,600 15.75
November 15, 2015 ......................... 5,400 17.25
The company uses a periodic inventory system, and a physical inventory on November 30, 2015, shows 9,600 units on
hand. Compute the ending inventory at November 30, 2015, under each of the following inventory methods:
42. FIFO
43. Average cost

44. Stephens Inc. is a wholesaler of photography equipment. The activity for the VTC cameras during July is shown below:
Balance/
Date Transaction Units Cost
July 1 Inventory 2,000 P36.00
 7 Purchase 3,000 37.00
12 Sales 3,600
21 Purchase 5,000 37.88
22 Sales 3,800
29 Purchase 1,600 38.11
If Stephens Inc. uses a moving average perpetual inventory system, the ending inventory of the VTC cameras at July
31 is reported as

FOR THE NEXT 4 REQUIREMENTS: The PRINCE COMPANY’S year-end inventory based on physical count conducted
on December 31, 2018, amounted to P885,000. Your cut-off examination disclosed the following information”:

1. Included in the physical count were goods billed to customer FOB shipping point on December 31, 2018. These
goods had a cost of P28,000 and were billed at P35,000. The shipment was on PRINCE’S loading dock waiting to
be picked up by the common carrier.
2. Goods were in transit from a vendor to PRINCE on December 31, 2018. The invoice cost was P50,000 and the
goods were shipped FOB Shipping on Dec. 29,2018.
3. Work in process inventory costing P20,000 was sent to an outside processor for plating on Dec. 30, 2018.
4. Goods returned by customers and held pending inspection in the returned goods area on Dec. 31, 2018, were not
included in the physical count. On January 8, 2019, the goods costing P26,000 were inspected and returned to
inventory. Credit memos totaling P40,000 were issued.
5. Goods shipped to customer FOB destination on Dec. 26, 2018, were in transit at Dec. 31, 2018 and had a cost of
P25,000. Upon notification of receipt by the customer on January 2, 2019, the company issued a sales invoice for
P42,000.
6. Goods received from a vendor on Dec. 26, 2018, were included in the physical count. However, the related P60,000
vendor invoice was not included in Accounts Payable as December 31, 2018, because the Accounts Payable copy
of the receiving report was lost.
7. On January 3, 2019, a monthly freight bill in the amount of P4,000 was received. This was specifically related to
merchandise purchased in Dec. 31, 2018. The freight charges were not included in either the inventory or in accounts
payable at Dec. 31, 2018.

45. Sales at year-end is overstated by:

a. P 75,000 b. P 40,000 c. P 35,000 d. P 33,000

46. Purchases at year-end is understated by:

a. P 110,000 b. P 84,000 c. P 64,000 d. P 60,000

47. Cost of sales at year-end is overstated by:

a. P 46,000 b. P 21,000 c. P 11,000 d. P 7,000

48. The inventory per audit at year-end is:

a. P 981,000 b. P 959,000 c. P 1,006,000 d. P 1,010,000

FOR THE NEXT FEW REQUIREMENTS: On January 1, 2019, Arcenith Corporation engaged an independent CPA to
perform an audit for the year ended December 31, 2018. The company uses a periodic inventory system. The CPA did not
observe the inventory count on December 31, 2018, as a result, a special examination was made of the inventory records.

The financial statements prepared by the company (uncorrected) showed the following: ending inventory, P72,000; accounts
receivable, P60,000; accounts payable, P30,000; sales, P400,000; net purchases, P160,000, and pretax income P51,000.

The following data were found during the audit:

1. Merchandise received on January 2, 2019, costing P800 was recorded on December 31, 2018. An invoice on hand
showed the shipment was made fob supplier’s warehouse on December 31, 2018. Because the merchandise was not
on hand at December 31, 2018, it was not included in the inventory.

2. Merchandise that cost P18,000 was excluded from the inventory, and the related sale for P23,000 was recorded. The
goods had been segregated in the warehouse for shipment; there was no contract for sale but a “tentative order by
phone”.

3. Merchandise that cost P10,000 was out on consignment for Valentin Distributing Company and was excluded from the
ending inventory. The merchandise was recorded as a sale P25,000 when shipped to Valentin on December 29, 2018.
4. A sealed packing case containing a product costing P900 was in Arcenith’s shipping room when the physical inventory
was taken. It was included in the inventory because it was marked “Hold for customer’s shipping instructions.”
Investigation revealed that the customer signed a purchase contract dated December 18, 2018, but that case was
shipped and the customer billed on January 10, 2019. A sale for P1,500 was recorded on December 31, 2018.

5. A special item, fabricated to order for a customer, was finished and in the shipping room on December 31, 2018. The
customer has inspected it and was satisfied. The customer was billed in full on that sale in the amount of P5,000. The
item was included in inventory at cost, P1,000 because it was shipped on January 4, 2019.

6. Merchandise costing P15,600 was received on December 28, 2018. The goods were excluded from inventory, and a
purchase was not recorded. The auditor located the related papers in the hands of the purchasing; they indicated, “On
consignment from Roselyn Company”.

7. Merchandise costing P2,000 was received on January 8, 2019, and the related purchase invoice recorded January 9.
The invoice showed the shipment was made on December 29, 2018, fob destination. The merchandise was excluded
from the inventory.

8. Merchandise that cost P6,000 was excluded from the ending inventory and not recorded as a sale for P7,500 on
December 31, 2018. The goods had been specifically segregated. According to the terms of the contract of sale,
ownership will not pass until actual delivery.

9. Merchandise that cost P15,000 was included in the ending inventory. The related purchase has not been recorded.
The goods had been shipped by the vendor fob destination, and the invoice was received on December 30, 2018. The
goods was received on January 5, 2019.

10. Merchandise in transit that cost P7,000 was excluded from inventory because it was not on hand. The shipment from
the vendor was fob shipping point. The purchase was recorded on December 29, 2018, when the invoice was received.

11. Merchandise in transit that cost P13,000 was excluded from inventory because it had not arrived. Although the invoice
had arrived, the related purchase was not recorded by December 31, 2018. The merchandise shipped fob shipping
point by the vendor.

12. Merchandise that cost P8,000 was included in the ending inventory because it was on hand. The merchandise had
been rejected because of incorrect specifications and was being held for return to the vendor. The merchandise was
recorded as a purchase on December 26, 2018.

Question:
Based on your analysis and the information above, answer the following:

49. The adjusted balance of inventory at year-end is:

a. P 101,900 b. P 102,000 c. P 102,800 d. P 120,400

50. The adjusted balance of accounts receivable at year-end is:

a. P 10,500 b. P 12,000 c. P 35,000 d. P 37,000

51. The adjusted balance of accounts payable at year-end is:

a. P 43,000 b. P 35,000 c. P 30,000 d. P 22,000

52. The adjusted balance of Sales at year-end is:

a. P 377,000 b. P 352,000 c. P 350,500 d. P 347,000

53. The adjusted balance of Net Purchases at year-end is:

a. P 152,000 b. P 165,000 c. P 173,000 d. P 181,000

54. The adjusted balance of Pre-tax income at year-end is:

a. P 27,300 b. P 29,000 c. P 29,800 d. P 35,800

55. At 12/31/17, the end of Feeney Company's first year of business, inventory was P4,100 and P2,800 at cost and at net
realizable value, respectively. Following is data relative to the 12/31/18 inventory of Feeney:
Item Original Cost Per Unit C .70
A P .65 D .75
B .45 E .90
 The estimated selling price is P1.00/unit for all items. Disposal costs amount to 10% of selling price and cost of
completion of 20% of the selling price. There are 1,000 units of each item in the 12/31/18 inventory. Prepare the entry(ies)
necessary at 12/31/18 based on the data above.

56. The following information was available from the inventory records of ABC Company for January:
Units Unit Cost Total Cost
Balance at January 1 3,000 P9.77 P29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917
Sales:
January 7 (2,500)
January 31 (3,200)
Balance at January 31 2,000
Assuming that ABC does not maintain perpetual inventory records, what should be the inventory at January 31, using
the weighted-average inventory method, rounded to the nearest peso?
A. P21,010. B. P20,474. C. P20,520. D. P20,720.

57. ABC Company sells one product which it purchases from various suppliers. The trial balance on December 31, 2014
included the following accounts:
Sales (100,000 units) 15,000,000
Sales discount 1,000,000
Purchases 9,300,000
Purchase discount 400,000
The inventory purchases during 2014 were as follows:
Units Unit Cost Total Cost
Beginning inventory, January 1 20,000 60.00 1,200,000
1st Purchase 30,000 65.00 1,950,000
2nd Purchase 40,000 70.00 2,800,000
rd
3 Purchase 50,000 75.00 3,750,000
4th Purchase 10,000 80.00 800,000
ABC’s accounting policy is to report inventory in its financial statements at the lower of cost or net realizable value. Cost
is determined under the weighted average method. ABC has determined that on December 31, 2014, the net realizable
value was P65 per unit, P6 higher compared to December 31, 2013. The following statements are correct (choose the
exception)
A. The amount of loss on inventory writedown is P250,000.
B. The ending inventory under the method adopted by ABC is P3,500,000.
C. Inventory must be carried at P3,250,000.
D. The total allowance on inventory write down is P250,000.