ST VINCENT COLLLEGE

FINANCIAL ACCOUNTING & REPORTING INVENTORY

EXERCISE
1. Lunar Company included the following items under inventories:

Materials 1,600,000
Advance for materials ordered 300,000
Goods in process 850,000
Unexpired insurance on inventories 50,000
Advertising catalogs and shipping cartons 200,000
Finished goods in factory 3,000,000
Finished goods in company-owned retail store, including 50%
profit on cost 600,000
Finished goods in hands of consignees including 40% profit
on sales 500,000
Finished goods in transit to customers, shipped FOB point of
shipment 250,000
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit shipped FOB shipping point, excluding
freight of P30,000 350,000
Goods held on consignment, at sales price, cost P80,000 100,000
Compute the correct amount of inventory.

a. 6,530,000 c. 6,680,000
b. 6,630,000 d. 6,600,000

2. ABC Company’s inventory at December 31, 2019 was P2,000,000 based on a physical count
of goods priced at cost, and before any necessary year-end adjustment relating to the
following:
Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2019. These goods had a cost of P50,000 and were picked up by the carrier on
January 10, 2020.

Goods shipped FOB shipping point on December 28, 2019 from a vendor to ABC were
received on January 4, 2020. The invoice cost was P70,000.

What amount should ABC report as inventory on its December 31, 2019 statement of financial
position?

a. 1,950,000 c. 2,020,000
b. 1,980,000 d. 2,070,000

3. The following applied to Keaty Company for 2019:

Merchandise purchased 4,000,000

Freight in 200,000
Freight out 150,000
Purchase return 100,000

Keaty’s inventoriable cost was

a. 4,000,000 c. 4,250,000
b. 4,200,000 d. 4,100,000

4. Norwalk Company included the following items in its inventory:

Merchandise out on consignment, at sales price, including 40%

markup on selling price 600,000
Goods purchased in transit, FOB destination 200,000
Goods held on consignment by Norwalk Company 500,000

By what amount should the inventory at December 31, 2019 be reduced?

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 a. 940,000 c. 500,000
b. 1,300,000 d. 740,000

5. Thomson Company had the following consignment transactions during the 2019:

Inventory shipped on consignment to Pavin

Company, consignee 500,000
Freight paid by Thomson 40,000
Inventory received on consignment from Bellin
Company, consignor 400,000
Freight paid by Bellin 30,000

No sales of consigned goods were made through December 31, 2019. In its December 31,
2019 statement of financial position, Thomson should include consigned inventory of

a. 970,000 c. 500,000
b. 900,000 d. 540,000

6. On October 1, 2019, Wonpro Company consigned 70 freezers to Gold Company for sale at
P10,000 each and paid P30,000 in transportation cost. On December 30, 2019, Gold reported
the sale of 40 freezers and remitted P340,000. The remittance was net of the agreed 15%
commission. What amount should Wonpro recognize as consignment sales revenue for 2019?

a. 595,000 c. 400,000
b. 340,000 d. 320,000

7. On December 1, 2019, Racel Store received 1,200 sweaters on consignment from ABC.
ABC’s cost for the sweaters was P700 each, and they were priced to sell at P1,000. Racel’s
commission on consigned goods is 10%. At December 31, 2019, 300 sweaters remained. In
its December 31, 2019 statement of financial position, what amount should Racel report as
payable for consigned goods?

a. 900,000 c. 960,000
b. 810,000 d. 270,000

8. Janine Company regularly buys sweaters from Mill Company and is allowed a trade discount
of 20% and 10% from a list price. Janine made a purchase on March 20, 2019, and received
an invoice with a list price of P1,000,000, a freight charge of P100,000, and payment terms of
net 30 days. Janine should record the purchase at

a. 820,000 c. 700,000
b. 720,000 d. 800,000

9. On June 1, 2019 Ela Company sold merchandise with a list price of P1,500,000 to XYZ
Corporation. Ela allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and
the sale was made FOB shipping point. Ela prepaid P70,000 of delivery cost for XYZ as an
accommodation. On June 11, 2019, Ela received from XYZ full remittance of

a. 1,026,000 c. 1,080,000
b. 1,096,000 d. 1,130,000

10. Dean Company’s accounts payable balance at December 31, 2019 was P3,000,000 before
considering the following transactions:

Goods were in transit from a Vendor to Dean December 31, 2019. The invoice price was
P100,000, and the goods were shipped FOB shipping point on December 29, 2019. The
goods were received on January 4, 2020.

Goods shipped to Dean, FOB shipping point at December 20, 2019, from a vendor were lost
in transit. The invoice price was P200,000. On January 5, 2020, Dean filed at P200,000 claim
against the common carrier.

On December 27, 2019, a vendor authorized Dean to return, for full credit, goods shipped and
billed at P70,000 on December 2, 2019. The returned goods were shipped by Dean on
December 27, 2019. A P70,000 credit memo was received and recorded by Dean on January
6, 2020.

In its December 31, 2019 statement of financial position, Dean should report accounts payable
of
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 a. 3,130,000 c. 3,300,000
b. 3,230,000 d. 2,930,000

11. Mar Company had 12,000 Units of product A on hand at January 1, 2019, costing P20 each.
Purchases of product A during the month of January were as follows:

Units Unit cost

January 10 30,000 21
18 15,000 22
28 10,000 23

A physical count on January 31, 2019 shows 20,000 units of product A on hand. The cost of
the inventory at January 31, 2019 under the FIFO method is

a. 460,000 c. 430,000
b. 450,000 d. 440,000

12. Dolly Company is a wholesaler of basketballs. On July 1, 2019 it had 150 units on hand
costing P600 each. Purchases during the month of July were as follows:

Units Unit cost

July 15 200 700
31 400 800

A physical count on July 31 shows 200 units on hand. The cost of the inventory July 31 under
the LIFO method is

a. 125,000 c. 140,000
b. 180,000 d. 160,000

13. The inventory records of Teaser Company show the following purchases

Units Cost
January 15,000 192,000
February 25,000 300,000
March 10,000 130,000

The March 31 inventory using FIFO is valued at P226,000. What is the March 31 LIFO
inventory?

a. 235,705 c. 232,400
b. 228,000 d. 226,000

14. The inventory card of Laina Company as at February 28, 2019 is as follows:

Purchase Units Balance

Cost Units Used Units
Jan. 10 110 3,000 3,000
31 1,000 2,000
Feb. 8 120 3,000 5,000
9 Return from factory, (100) 5,100
(Jan. 10 lot)
28 1,100 4,000

The weighted average cost of the inventory as at February 28, 2019 is

a. 480,000 c. 460,000
b. 420,000 d. 440,000

15. Anda Company uses the moving average method to determine the cost of its inventory.
During January 2019, Anda recorded the following information pertaining to its inventory:

Units Unit cost Total cost

Balance on Jan. 1 30,000 5 150,000
Sold on Jan. 17 25,000
Purchased on Jan.28 10,000 8 80,000

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 What amount of inventory should Anda report in its January 31, 2019 statement of financial
position?

a. 105,000 c. 97,500
b. 150,000 d. 80,000

16. The following information pertains to Mine Company, seller of recliners for the year ended
December 31, 2019:

Units Unit cost Total cost

January 1 Inventory on hand 300 2,000 600,000
April 3 Purchase 400 1,500 600,000
October 1 Purchase 600 1,750 1,050,000

The company sold 400 recliners on June 25 and 500 on December 10. What is the weighted
average cost of the inventory on December 31, 2019?

a. 700,000 c. 800,000
b. 629,000 d. 692,000

17. Ray Company recorded the following data pertaining to raw material Y during January 2019:

Units
Date Received Cost Issued On hand
Jan. 1 Inventory 100 6,000
Jan. 8 Issue 4,000 2,000
Jan. 20 Purchase 10,000 130 12,000

The moving average unit cost of Y inventory at January 31 is

a. 130.00 c. 115.00
b. 118.75 d. 125.00

18. The following information pertains to the inventory of Francine Company at year-end:

Cost 400,000
Replacement cost 350,000
Net realizable value 370,000
Net realizable value less normal profit 250,000

Under the lower of cost or NRV convention, how much is the year-end inventory value of this
item?

a. 400,000 c. 370,000
b. 350,000 d. 250,000

19. Based on a physical inventory taken on December 3, 2019, Cherry Company determined its
chocolate inventory on a FIFO basis at P2,500,000 with a replacement cost of P2,400,000.
Cherry estimated that, after further processing costs of P1,000,000, the chocolate could be
sold as finished candy bars for P4,000,000. Cherry’s normal profit margin is 10% of sales.
Under the lower of cost or NRV rule, what amount should Cherry report as chocolate inventory
in its December 31, 2019 statement of financial position?

a. 3,000,000 c. 2,700,000
b. 2,400,000 d. 2,500,000

20. On July 1, 2019, Boze Company purchased a tract of land for P10,000,000. Boze incurred
additional cost of P2,000,000 during the remainder of 2019 in preparing the land for sale. The
tract was subdivided into residential lots as follows:

Lot class Number of lots Sales price per lot

A 100 220,000
B 100 180,000
C 200 100,000

Using the relative sales value method, what amount of cost should be allocated to Class A
lots?

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 a. 3,000,000 c. 4,000,000
b. 4,400,000 d. 3,600,000

21. Pam Company has a recent gross profit history of 40% of net sales. The following data are
available from Pam’s accounting records for the three months ended March 31, 2019:

Inventory – January 1 500,000

Purchases 3,000,000
Net sales 4,000,000
Purchase return 100,000
Freight in 70,000

Using the gross profit method, the estimated cost of inventory on March 31, 2019, should be

a. 1,870,000 c. 1,270,000
b. 1,070,000 d. 2,400,000

22. Dara Company’s accounting records indicated the following information for 2019:

Inventory, January 1 300,000

Purchases 2,400,000
Sales 2,800,000

A physical inventory taken on December 31, 2019, resulted in an ending inventory of

P400,000. Dara’s gross profit on sales has remained constant at 25% in recent years. Dara
suspects some inventory may have been taken by a new employee. At December 31, 2019
what is the estimated cost of missing inventory?

a. 600,000 c. 300,000
b. 200,000 d. 0

23. Converse Company provides the following data for year 2019.

Sales 5,500,000
Sales return 500,000
Inventory, January 1 1,220,000
Purchases 5,000,000
Freight in 250,000
Purchase return 100,000
Purchase allowance 20,000
Purchase discount 50,000
Inventory, December 31 2,300,000

The gross profit rate on cost for the year is

a. 25 percent c. 80 percent
b. 20 percent d. 37 1/2 percent

24. The following information is provided by Era Company for the year 2019:

Inventory, January 1 700,000

Purchases 1,800,000
Freight in 100,000
Purchase return and allowance 140,000
Purchase discount 60,000
Sales 2,100,000
Sales return 100,000
Sales allowance 50,000
Sales discount 50,000
Gross profit rate on cost 25%

Using the gross profit method, the estimated cost of the inventory on December 31, 2019 is

a. 880,000 c. 800,000
b. 975,000 d. 900,000

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25. On December 31, 2019, a big fire caused severe damage to the warehouse of Active
Company. The following information was available.

2019 2018
Merchandise inventory, beginning 2,000,000 --
Purchases 7,000,000 5,700,000
Purchase return 500,000 200,000
Sales 8,000,000 5,000,000

At the beginning of 2019, the company changed its policy on the selling prices of the
merchandise in order to produce a gross profit rate of 5% higher than the gross profit rate in
2018. Undamaged merchandise marked to sell at P1,000,000 was salvaged. Damaged
merchandise marked to sell at P150,000 had an estimated realizable value of P20,000.

The inventory fire loss should be reported at

a. 2,150,000 c. 2,290,000
b. 2,630,000 d. 2,180,000

26. Iligan Company lost all of its inventory by fire on December 31, 2019.

2019 2018 2017

Inventory – January 1 1,050,000 1,400,000 800,000
Net purchases 4,360,000 2,740,000 2,690,000
Net sales 5,000,000 4,000,000 3,400,000

Goods with selling price of P200,000 are sent on consignment to ABC Corporation. These
goods are still unsold by ABC on December 31, 2019.

Goods purchased costing P150,000 are in transit to Iligan Company on December 31, 2019.
The goods were shipped FOB shipping point on December 28, 2019 and properly recorded as
purchases.

The inventory fire loss should be reported at

a. 1,560,000 c. 1,620,000
b. 1,910,000 d. 1,770,000

27. On December 31, 2019, a fire broke out in the warehouse of Freeze Company destroying all
inventory. The information available is presented below.

January 1 December 31
Inventory 600,000
Accounts receivable 500,000 420,000
Accounts payable 400,000 500,000
Collection on accounts receivable 2,640,000
Payments to suppliers 1,600,000
Goods on consignment at sales price 200,000
Salvage value of inventory 10,000

Summary of prior years’ sales:

2018 2017 2016

Sales 2,800,000 2,700,000 2,500,000
Gross profit 1,260,000 1,080,000 860,000

What is the inventory fire loss on December 31, 2019?

a. 634,000 c. 554,000
b. 764,000 d. 644,000

28. On October 15, 2019, a fire destroyed all the stock of equipment of Modern Company in its
rented stockroom. The records of the firm showed the following information:

Inventory- January 1 400,000

Sales, January 1- October 15 3,700,000
Sales return and allowance 50,000
Purchases, January 1- October 15 3,500,000
Purchase return and allowance 100,000
Cost of stock in display room, not destroyed 300,000

Summary of prior years’ sales:

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 2018 2017 2016
Sales 3,700,000 3,500,000 3,000,000
Gross profit 1,295,000 1,050,000 750,000

How much is the estimated cost of merchandise lost in the fire on October 15, 2019?

a. 945,000 c. 1,610,000
b. 1,310,000 d. None of these

29. Hutch Company uses the conventional retail inventory method to account for inventory. The
following information relates to 2019 operations:

Cost Retail
Beginning inventory and purchases 650,000 820,000
Net markups 30,000
Net markdowns 50,000
Sales 680,000

What is the estimated ending inventory at the end of 2019?

a. 120,000 c. 97,500
b. 95,160 d. 91,800

30. Dean Company uses the retail inventory method to estimate its inventory for interim statement
purposes. Data relating to the inventory computation at July 31, 2019 are as follows:

Cost Retail
Inventory, 7/1/19 200,000 300,000
Purchases 1,200,000 1,520,000
Net markups 180,000
Sales 1,600,000
Estimated normal shoplifting losses 20,000
Net markdowns 120,000

Under the approximate lower of average cost or market retail method, Dean’s estimated
inventory at July 31, 2019 is

a. 156,000 c. 260,000
b. 182,000 d. None of these

31. On January 1, 2019, the stock inventory of Ron Store was P100,000 at retail and P60,000 at
cost. During the year, the store registered the following purchases:

Cost 500,000
Retail price 670,000
Original markup 170,000

The total net sales was P560,000. The following reductions were made in the retail price:

To meet price competition 5,000

To dispose of overstock 3,000
Miscellaneous reductions 12,000

During the year, the selling price of a certain inventory increased from P30 to P40. This
additional markup applied to 4,000 items but was later canceled on the remaining 1,000 items.
What is the inventory on December 31, 2019 using the retail method?

a. 220,000 c. 154,000
b. 168,000 d. 132,000

Nos. 32 and 33 are based on the following information:

East Company adopted the FIFO method of inventory pricing in connection with its use of the
retail inventory method. The retail records for the years 2018 and 2019 show the following:

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 2018 Cost Retail
Opening inventory 556,800 920,000
Purchases 4,500,000 7,350,000
Net markup 230,000
Net markdown 80,000
Sales 6,840,000

2019
Purchases 4,550,000 6,930,000
Net markup 135,000
Net markdown 65,000
Sales 7,120,000

32. Determine the estimated cost of inventory on December 31, 2018 applying the FIFO retail
approach.

a. 1,850,000 c. 1,580,000
b. 948,000 d. 1,027,000

33. Determine the estimated cost of inventory on December 31, 2019 applying the FIFO retail
approach.

a. 984,000 c. 949,000
b. 876,000 d. 1,460,000

34. Ayala Company provided the following data.

Cost Retail
Beginning inventory 145,000 350,000
Purchases 2,700,000 3,400,000
Freight in 35,000
Markup 200,000
Markup cancellation 110,000
Markdown 160,000
Markdown cancellation 50,000
Sales 3,200,000
Physical inventory at year end 500,000
Estimated normal shrinkage is 4% of sales

Compute the ending inventory applying the conservative retail approach.

a. 301,500 c. 676,500
b. 402,000 d. 310,391

BIOLOGICAL ASSETS / AGRICULTURE

Nos. 35 to 38 are based on the following information:

H Company has a herd of 10 two-year old animals on January 1, 2019. One animal aged 2.5
years was purchased on July 1, 2019 for P113, and one animal was born on July 1, 2019. No
animals were sold or disposed of during the year. The fair value less cost to sell per unit is as
follows:

2 year old animal on January 1 P105

2.5 year old animal on July 1 113
New born animal on July 1 70
2 year old animal on December 31 110
2.5 year old animal on December 31 116
New born animal on December 31 75
3 year old animal on December 31 125
0.5 year old animal on December 31 85

35. What is the fair value of the biological assets on December 31, 2019?

a. 1,400 c. 1,375
b. 1,460 d. 1,451

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36. What is the gain from change in fair value of biological assets that should be recognized in
2019?

a. 297 c. 237
b. 292 d. 212

37. What is the gain from change in fair value due to price change?

a. 297 c. 58
b. 237 d. 128

38. What is the gain from change in fair value due to physical change?

a. 212 c. 237
b. 239 d. 58

39. F Company on adoption of PAS 41 has reclassified certain assets as biological assets. the
total value of the forest assets is P8,000,000 which comprises:

Free standing trees 6,000,000

Land under trees 1,200,000
Roads in forests 800,000
8,000,000

If F Company’s statement of financial position, how much of the forest assets shall be
classified as biological assets?

a. 7,200,000 c. 6,800,000
b. 6,000,000 d. 8,000,000

40. C Company is a producer of coffee. The entity is considering the valuation of its harvested
coffee beans. Industry practice is to value the coffee beans at market value and uses as
reference a local publication “Accounting for Successful Farms”.

On December 31, 2018, the entity has harvested coffee beans costing P4,000,000 and with
fair value less cost to sell of P4,500,000 at the point of harvest.

Because of long aging and maturation process after harvest, the harvested coffee beans were
still on hand on December 31, 2019. On such date, the fair value less cost to sell is
P4,900,000 and the net realizable value is P4,200,000.

The coffee beans inventory shall be measured at

a. 4,000,000 c. 4,500,000
b. 4,200,000 d. 4,900,000

- End -

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 Answer Key

Inventory

1. B 6. C 11. B 16. D
2. D 7. B 12. A 17. D
3. D 8. A 13. B 18. C
4. A 9. B 14. C 19. D
5. D 10. B 15. A 20. B

21. B 26. C 31. C 36. A

22. B 27. A 32. B 37. C
23. A 28. B 33. C 38. B
24. C 29. D 34. A 39. B
25. B 30. B 35. B 40. B

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