Far Eastern University

INSTITUTEOF ACCOUNTS, BUSINESS AND FINANCE

Department of Accountancy & Internal Auditing

INTERMEDIATE ACCOUNTING 1
MIDTERM GRADING PERIOD
POST-TEST 3 – INVENTORIES (PP)

NAME SECTION
(Family Name) (First Name) (Middle Name) SCORE
DATE RATING
SHS Track

GENERAL INSTRUCTIONS
1. Complete the information above.
2. In case you will change your answer, draw a straight line on your first answer and affix your full signature after
such line. Then, write your final answer on top of the first answer.
3. Answers in pencil, in friction pen, or any erasures with liquid paper or correction fluid will receive no credit.
4. Only BLACK INK is allowed to be used for your answers.
5. Write legibly and make your writing bigger or readable.
6. Talking to your classmates is not allowed during the quiz period.
7. Direct all question to the professor in charge or proctor.
8. Borrowings of pen and calculators are prohibited.
9. Cellphone and smart watches are not allowed during the quiz period.
10. While the quiz is going on, no one is allowed to get out of the examination room.
11. At the end of the quiz period, ANSWER SHEET (if any and applicable) must be submitted together with the
QUESTIONNAIRES.
12. Any form of cheating will be dealt with accordingly.
13. Failure to comply with the above rules will merit a grade of “F”.

QUIZ PROPER PART 1 – MCQ THEORY (20 POINTS)

Instructions: Select the best answer among the given choices. Write only the letter of your choice on the
ANSWER SHEET provided below. Use CAPITAL LETTER.

ANSWER SHEET

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

1. Inventories are assets (choose the incorrect one)

A. Held for sale in the ordinary course of business.
B. In the process of production for sale
C. In the form of materials or supplies to be consumed in the production process or in the rendering of
services.
D. Held for use in the production or supply of goods or services.

2. Inventories encompasses all of the following, except:

A. Merchandise purchased by a retailer
B. Land and other property not held for sale.
C. Finished goods produced.
D. Materials and supplies awaiting use in the production process.

3. Inventories shall be measured at

A. Cost
B. Net Realizable Value
C. Lower of cost or fair value less cost to sell
D. Lower of cost or net realizable value

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 4. The cost of inventories shall comprise all of the following costs, except:
A. Cost of purchase
B. Cost of conversion
C. Other cost incurred in bringing the inventories to their present location and condition
D. Abnormal amount of wasted material

5. The cost of inventories shall be measured using the following except:

A. FIFO
B. Average Method
C. Specific identification Method
D. LIFO

6. Net Realizable value is the

A. Current replacement cost
B. Estimated selling price less estimated cost to complete
C. Estimated selling price less estimated cost to complete and estimated cost to sell
D. Estimated selling price

7. The amount of any write down 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.

8. The cost of inventories may not be recoverable under all of the following conditions, except
A. The inventories are damaged
B. The estimated costs of completion or the estimated costs to sell shall have increased.
C. The inventories have become wholly or partly obsolete.
D. The selling price have increased.

9. A large manufacturer of cosmetics sells merchandise to a retailer, which in turn sells the goods to the public at
large through its chain of retail outlets. The retailer purchases merchandise from the manufacturer under a
consignment contract. When should revenue from the sale of merchandise to the retailer be recognized by the
manufacturer?
A. When goods are delivered to the retailer.
B. When goods are sold by the retailer.
C. It will depend on the terms of delivery of the merchandise (i.e. CIF cost, insurance and freight or FOB).
D. It will depend on the terms of payment (i.e. cash or credit).

10. A new entity manufacturing and selling consumable products has come out with an offer to refund the cost
of purchase within one month after the sale if the customer is not satisfied with the product. When should
the entity recognized the revenue?
A. When goods are sold to the customers.
B. After one month of sale.
C. Only if the 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.

11. Merchandise shipped FOB shipping point on the last date of the year should ordinarily be included in
A. The buyer’s inventory balance.
B. The seller’s inventory balance.
C. Neither the buyer’s nor seller’s inventory balance.
D. Both the buyer’s and seller’s inventory balance.

12. If goods shipped FOB destination are in transit at the end of the year, they should be included in the
inventory balance of the
A. Seller
B. Common carrier
C. Buyer
D. Bank

13. Which inventory cost flow assumption would consistently result in the highest income in a period sustained
inflation?
A. FIFO
B. LIFO
C. Weighted average
D. Specific identification

14. Which is the method of accounting for inventories in which the cost of goods sold is recorded each time a
sale is made?
A. Professional inventory system
B. Periodic inventory system

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 C. Perpetual inventory system
D. Planned inventory system

15. Freight and other handling charges incurred in the transfer of goods from the consignor to consignee are
A. Expense on the part of the consignor.
B. Expense on the part of the consignee.
C. Inventoriable by the consignor.
D. Inventoriable by the consignee.

16. The use of a discount lost account implies that cost of a purchased inventory item is the
A. Invoice price of the item
B. List price of the item
C. Invoice price less the purchase discount taken on the item
D. Invoice price less the purchase discount allowable whether or not taken on the item

17. A major advantage of retail inventory method is that it

A. Permits companies which use it to avoid taking an annual physical inventory.
B. Gives a more accurate statement of inventory cost than other methods.
C. Hides costs from customers and employees.
D. Provides a method for inventory control and facilitates determination of the periodic inventory.

18. The retail inventory method would include which of the following in the calculation of goods available for
sale at both cost and retail?
A. Freight-in
B. Purchase returns
C. Mark-ups
D. Markdowns

19. The gross profit method of estimating ending inventory may be used for all of the following except:
A. Internal as well as external interim reports.
B. Internal as well as external year-end reports.
C. Estimate of inventory destroyed by fire or other casualty.
D. Rough test of the validity of an inventory cost determined under either periodic or perpetual system.

19. The use of gross profit method assumed

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.

20. A mark-up of 25% on cost is equivalent to what mark=up on selling price?

A. 15%
B. 20%
C. 25%
D. 33%

QUIZ PROPER PART 2 – MCQ PROBLEMS (40 POINTS)

Instructions: Select the best answer among the given choices. Write only the letter of your choice on the
ANSWER SHEET provided below. Use CAPITAL LETTER.

ANSWER SHEET

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

PROBLEM 1:
A retailer imported goods at a cost of P 260,000, including P 40,000 non-refundable import duties and P 20,000
refundable purchase taxes. The risks and rewards of ownership of the imported goods were transferred to the
retailer upon collection of the goods from the harbor warehouse. The retailer was required to pay for the goods upon
collection. The retailer incurred P 10,000 to transport the goods to its retail outlet and a further P 4,000 in delivering
the goods to its customer. Further selling costs of P 6,000 were incurred in selling the goods.

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1. What amount should the inventory be valued?
A. P 240,000
B. P 250,000
C. P 260,000
D. P 270,000

PROBLEM 2:
The balance in Page Company’s inventory account on December 31, 2019 was P 1,225,000 before the following
information was considered:

 Goods shipped FOB Destination on December 20, 2014 from a vendor to Page were lost in transit. The
invoice cost of P 45,000 was not recorded by Page. On December 28, 2019, Page notified the vendor of the
lost shipment.
 Goods were in transit from a vendor to Page on December 31, 2019. The invoice cost was P 60,000 and the
goods were shipped FOB shipping point on December 28, 2014. Page received the goods on January 1,
2020.

2. What amount of inventory should be reported in the December 31, 2019 statement of financial position?
A. P 1,225000
B. P 1,270,000
C. P 1,285,000
D. P 1,330,000

PROBLEM 3:
Alca Company’s inventory at June 30, 2020 was P 750,000 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 June 30, 2020. These
goods costing P 15,000 were picked up by the carrier on July 9, 2020.
 Goods shipped FOB destination on June 28, 2020 from a vendor to Alca was received on July 1, 2020. The
invoice cost was P 25,000.

3. What amount should Alca report as inventory in its June 30, 2020 statement of financial position?
A. P 735,000
B. P 740,000
C. P 750,000
D. P 765,000

PROBLEM 4:
The inventory on hand at December 31, 2020 for Conrad Company is valued at a cost of P 947,800. The following
items were not included in this inventory amount:

A. Purchased goods in transit, shipped FOB destination. Invoice price – P 32,000, which includes freight
charges of P 1,600.
B. Goods held on consignment by Conrad at a sales price of P 28,000, including sales commission of 20% of
the sales price.
C. Goods sold to Ube Company, under terms FOB destination, invoiced for P 24,400 which includes P 1,000
freight charges to deliver the goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price – P 48,000. Freight costs, P 3,000.
E. Goods out on consignment to Can Company, sales price, P 36,400. Shipping cost of P 2,000.

Mark-up on cost for all sales is 30%.

4. What is the correct cost of inventory to be reported in Conrad’s financial statements?

A. P 1,022,400
B. P 1,041,000
C. P 1,046,800
D. P 1,078,800

PROBLEM 5:
Marker Company has the following information pertaining to its merchandise inventory as of December 31, 2019:

Inventory on hand (including merchandise received on

consignment of P 20,000) 200,000
Inventory purchased with a buyback agreement 100,000
Merchandise in transit, FOB shipping point, including P 5,000 freight cost 155,000
Merchandise in transit, free alongside, including delivery cost alongside
the vessel of P 6,000 but excluding the cost of shipment of P 3,000 250,000
Merchandise in transit, CIF (including insurance cost and freight of P 8,000) 175,000

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5. What amount should Marker Company report as value of its inventory in its 2019 statement of financial position?
A. P 749,000
B. P 757,000
C. P 763,000
D. P 857,000

PROBLEM 6:
Feelings Company sold selected merchandise on a consignment basis during 2019. Freeling’s 2019 accounting
records show the following information:

Inventory, January 1 244,000

Inventory on hand, December 31 290,000
Inventory on consignment, December 31 40,000
Purchases 1,080,000
Freight-in 20,000
Freight-out to customers 70,000
Freight-out to consignees 10,000

6. What amount should Feelings report as cost of goods sold in 2019 statement of comprehensive income?
A. P 1,014,000
B. P 1,024,000
C. P 1,094,000
D. P 1,354,000

PROBLEM 7:
The following information applies to Agony. Inc. for 2019:

Merchandise purchased for resale 400,000

Freight-in 10,000
Freight-out 5,000
Purchase returns 2,000

7. How much is Agony’s 2019 inventoriable cost?

A. P 400,000
B. P 403,000
C. P 408,000
D. P 413,000

PROBLEM 8:
On March 1, 2020, Good Company purchased a tract of land for P 18,000,000. Good incurred additional cost of P
4,500,000 during the remainder of year 2020 in preparing the land for sale. The land was subdivided into residential
lots as follows:

Lot Class Number of Lots Sales Price per Lot

A 100 240,000
B 100 160,000
C 200 100,000

8. Using the relative sales price method, how much should be allocated to Class A lot?
A. P 7,200,000
B. P 8,640,000
C. P 9,000,000
D. P 10,800,000

PROBLEM 9:
Canary Menswear regularly buys shirts from Ube Company and is allowed trade discounts of 20% and 10% from the
list price. Canary purchased shirts on May 9, 2020 and received an invoice with a list price of P 50,000 and payment
terms of 2/10, n/30. Canary uses the net method of recording purchases.

9. At what amount should Canary record the purchases?

A. P 34,300
B. P 35,000
C. P 35,280
D. P 36,000

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PROBLEM 10:
On June 1, 2020, Pitt sold merchandise with a list price of P 50,000 on Bull on account. Pitt allowed trade discounts
of 30%, 20% and 10%. Credit terms were 2/15, n/40 and the sale was made FOB destination. Bull paid P 2,000 of
delivery costs.

10. On June 12, 2020, how much did Pitt receive from Bull as full payment?
A. P 22,696
B. P 24,696
C. P 26,656
D. P 26,696

PROBLEM 11:
Clothes Company maintains a markup of 60% based on cost. The company’s selling and administrative expenses
average 30% of sales. Annual sales were P 1,440,000.

11. How much should be reported as cost of sales and Operating profit, respectively?
A. P 864,000; P 144,000
B. P 864,000; P 432,000
C. P 900,000; P 108,000
D. P 900,000; P 432,000

PROBLEM 12:
Tape Company reported the following balances at December 31, 2019 and 2020:

12/31/2020 12/31/2019
Inventory 2,600,000 2,900,000
Accounts Payable 750,000 500,000

The company paid its suppliers P 4,900,000 during the year ended December 31,2020.

12. How much should Tape report as cost of goods sold in its December 31, 2020 statement of comprehensive
income?
A. P 4,350,000
B. P 4,850,000
C. P 4,950,000
D. P 5,450,000

PROBLEM 13:
Light Company is a wholesaler of scented candles. The activity for item number 1234 during June, 2020 is presented
below:

Date Transactions Units Cost

June 0 Inventory balance 6,000 20
1
0 Purchases 9,000 24
4
1 Sales 10,800
2
1 Purchases 14,400 26
9
2 Sales 11,400
2
2 Purchases 4,800 27
9

13. Under the FIFO periodic inventory system, how much is the ending inventory of item number 1234 at June 30?
A. P 280,800
B. P 278,400
C. P 302,400
D. P 316,800

14. Under the FIFO perpetual inventory system, how much is the ending inventory of item number 1234 at June 30?
A. P 280,800
B. P 278,400
C. P 302,400
D. P 316,800

6|Page Post-Test 3 (Inventories)

PROBLEM 14:
During January 2020, Metro Company which maintains a perpetual inventory system recorded the following
information pertaining to its inventory:

Date Transactions Units Unit Units on

Cost Total Cost Hand
Januar 0 Inventory balance 1,000 40 40,000 1,000
y 1
0 Purchases 600 120 72,000 1,600
4
2 Sales 900 700
0
2 Purchases 400 200 80,000 1,100
5

15. Under the moving average method, what amount should Metro report as inventory at January 31, 2020?
A. P 105,600
B. P 129,000
C. P 132,000
D. P 156,000

PROBLEM 15:
The Savior Company uses the lower of cost or net realizable value inventory. Data regarding the items in work in
process inventory are presented below:

Markers Pens
Historical cost 24,000 18,880
Selling price 36,000 21,800
Estimated cost to complete 4,800 4,800
Replacement cost 20,800 16,800
Normal profit margin as a percentage of selling price 25% 25%

16. What is the amount of markers inventory to be reported in Savior’s statement of financial position?
A. P 20,800
B. P 23,400
C. P 24,000
D. P 31,200

17. What is the amount of pens inventory to be reported in Savior’s statement of financial position?
A. P 17,000
B. P 18,880
C. P 21,800
D. P 26,000

PROBLEM 16:
On the eve of June 15, 2020, a fire destroyed the entire merchandise inventory of Chronic Merchandising
Corporation. The merchandise was not insured with any insurance company. The following data were gathered:

Inventory, January 1 250,000

Purchases, January 1 to June 15 1,500,000
Sales, January 1 to June 15 2,000,000
Markup percentage on cost 25%

18. What is the approximate inventory loss as a result of the fire?

A. P 150,000
B. P 250,000
C. P 312,500
D. P 500,000

PROBLEM 17:
Sultan Company uses the retail inventory method to estimate its inventory for interim statement purposes, Data
relating to the inventory computation at June 30, 2020 are as follows:

7|Page Post-Test 3 (Inventories)

 Cost Retail
Inventory, January 1 820,000 1,262,800
Net purchases 2,280,000 3,607,200
Net markups 450,000
Net markdowns 320,000
Sales 4,350,000
Sales returns 300,000
Employee discount 100,000
Sales discount 80,000
Normal shrinkage 50,000

19. What is the estimated cost of June 30, 2020 inventory using the average approach?
A. P 466,000
B. P 496,000
C. P 616,000
D. P 800,000

PROBLEM 18:
The Bony Department Store uses a calendar year and the FIFO retail inventory method (assuming stable prices).
Information relating to the computation of the inventory at December 31 is as follows:

Cost Retail
Inventory, January 1 320,000 800,000
Sales 5,800,000
Purchases 2,100,000 6,000,000
Freight-in 70,000
Net markups 400,000
Net markdowns 200,000

20. What is the ending inventory at cost at December 31 using the FIFO retail inventory method?
A. P 420,000
B. P 430,000
C. P 440,000
D. P 460,000

8|Page Post-Test 3 (Inventories)