Brilliant Company purchased motorcycles from various countries for export to other countries.

The entity has

incurred the following costs during the current year:
Cost of purchases based on vendors' invoices 5,000,000
Trade discounts on purchases already deducted from vendors' invoices500,000
Import duties 400,000
Freight and insurance on purchases 1,000,000
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
After-sales warranty costs 250,000
What is the total cost of the purchases?
A. 5,700,000 C. 6,500,000
B. 6,100,000 D. 6,700,000 FA © 2014

1. Answer is (D).
Cost of purchases 5,000,000
Import duties 400,000
Freight and insurance 1,000,000
Other handling costs 100,000
Brokerage commission 200,000
Total cost of purchases 6,700,000

i. Quest Company reported accounts payable on December 31, 2014 at P2,000,000 before considering
the following transactions:
 Goods shipped to Quest Company, FOB shipping point on December 20, 2014, from a vendor were lost in
transit. The invoice price was P100,000. On January 5, 2015, Quest Company filed at P100,000 claim against
the common carrier.
 On December 27, 2014, a vendor authorized Quest Company to return, for full credit, goods shipped and
billed at P50,000 on December 2, 2014. The returned goods were shipped by Quest Company on December
27, 2014. A P50,000 credit memo was received and recorded by Quest Company on January 6, 2015.
On December 31, 2014, what amount should be reported as accounts payable?
A. 2,050,000 C. 2,250,000
B. 2,150,000 D. 2,300,000 FA © 2014

ii. Black Company reported accounts payable on December 31,2014 at P4,500,000 before any necessary year-end
adjustments relating to the following transactions:
• On December 27,2014, Black wrote and recorded checks to creditors totaling P2,000,000 causing an
overdraft of P500,000 in Black's bank account on December 31, 2014. The checks were mailed on January
10,2015.
• On December 28, 2014, Black purchased and received goods for P750,000, terms 2/10, n/30. Black records
purchases and accounts payable at net amount. The invoice was recorded and paid January 3,2015.
• Goods shipped F.O.B. destination on December 20,2014 from a vendor to Black were received January
 2,2015. The invoice cost was P325,000.
On December 31, 2014, what amount should be reported as accounts payable?
A. 7,235,000 C. 7,553,500
B. 7,250,000 D. 7,575,000 P1 © 2014

iii. Kew Company reported accounts payable on December 31,2014 at P2,200,000 before considering the following
data:
• Goods shipped to Kew F.O.B. shipping point on December 22, 2014, were lost in transit. The invoice cost of
P40,000 was not recorded by Kew. On January 7,2015, Kew filed a P40,000 claim against the common
carrier.
• On December 27, 2014, a vendor authorized Kew to return, for full credit, goods shipped and billed at
P70,000 on December 3,2014. The returned goods were shipped by Kew on December 28,2014. A P70,000
credit memo was received and recorded by Kew on January 5, 2015.
• On December 31,2014, Kew has a P500,000 debit balance in accounts payable to Ross, a supplier, resulting
from a P500,000 advance payment for goods to be manufactured.
What amount should be reported as accounts payable on December 31,2014?
A. 2,170,000 C. 2,680,000
B. 2,670,000 D. 2,730,000 P1 © 2014

iv. Bakun Company began operations late in 2013. For the first quarter ended March 31,2014, the entity provided
the following information:
Total merchandise purchased through March 15, 2014 recorded at net 4,900,000
Merchandise inventory on December 31, 2013, at selling price 1,500,000
All merchandise was acquired on credit and no payments have been made on accounts payable since the
inception of the entity. All merchandise is marked to sell at 50% above invoice cost before time discounts of 2/10,
n/30. No sales were made in 2014. What amount of cash is required to eliminate the current balance in accounts
payable?
A. 5,750,000 C. 6,000,000
B. 5,900,000 D. 6,400,000 P1 © 2014

v. Black Company reported accounts payable on December 31, 2014 at P900.000 before any necessary
year-end adjustments relating to the following transactions:
 On December 27, 2014, Black Company wrote and recorded checks to creditors totaling P400,000 causing
an overdraft of P100,000 in Black Company's bank account on December 31, 2014. The checks were mailed
out on January 10, 2015.
 On December 28, 2014, Black Company purchased and received goods for P150,000 terms 2 /10, n /30.
Black Company records purchases and accounts payable at net amount. The invoice was recorded and paid
January 3, 2015.
 Goods shipped FOB shipping point, 5/10, n/30 on December 20, 2014 from a vendor to Black Company
were received January 2, 2015. The invoice cost was P200,000.
On December 31, 2014, what amount should be reported as accounts payable?
A. 1,447,000 C. 1,637,000
B. 1,450,000 D. 1,650,000 FA © 2014

Payment for purchases

vi. On June 1,2014, Pitt Company sold merchandise with a list price of P5,000,000 to Burr on account. Pitt allowed
trade discounts of 30% and 20%. Credit terms were 2/10, n/30 and the sale was made FOB shipping point. Pitt
prepaid P200,000 of delivery costs for Burr as an accommodation. On June 11, 2014, what amount was received
by Pitt from Burr as remittance in full?
A. 2,744,000 C. 2,944,000
 B. 2,940,000 D. 3,140,000 P1 © 2014

vii. Cognac Company used the perpetual inventory and gross method of recording purchases. On December 1, the
entity purchased P1,500,000 of inventory, terms 2/10, n/30. On December 5, the entity returned goods that cost
P150,000. On December 11, the entity paid the supplier. On December 11, what account should be credited?
FA © 2014
A. Inventory for P27,000 C. Purchase discount for P27,000
B. Inventory for P30,000 D. Purchase discount for P30,000

Net method vs. gross method

viii. Rabb Company records purchases at gross amount but wishes to change to recording purchases net of purchase
discounts. Discount available on purchases for the current year totaled P100,000. Of this amount, P10,000 is still
available in the accounts payable balance. The balances in the accounts as of and for the year ended December
31, before conversion are:
Purchases 5,000,000
Purchase discounts taken 40,000
Accounts payable 1,500,000
What is the balance of accounts payable on December 31 after the conversion?
A. 1,410,000 C. 1,460,000
B. 1,440,000 D. 1,490,000 P1 © 2014

ix. Duke Company specializes in the sale of IBM compatibles and software packages and had the following
transactions:
Purchases of IBM compatibles 1,700,000
Purchases of commercial software packages 1,200,000
Returns and allowances 50,000
Purchase discounts taken 17,000
Terms on all purchases were 2/10, n/30. All returns and allowances took place within 5 days of purchase and
prior to any payment. What was the amount of discount lost?
A. 17,000 C. 41,000
B. 40,000 D. 57,000 FA © 2014

x. On August 1 of the current year, Stella Company recorded purchases of inventory of P800,000 and P 1,000,000
under credit terms of 2/15, net 30. The payment due on the P800,000 purchase was remitted on August 16. The
payment due on the P1,000,000 purchase was remitted on August 31. Under the net method and the gross
method, these purchases should be included at what respective amounts in the determination of cost of goods
available for sale?
FA © 2014 A. B. C. D.
Net method 1,784,000 1,764,000 1,764,000 1,800,000
Gross method 1,764,000 1,800,000 1,784,000 1,764,000

Questions 1 & 2 are based on the following information. (34) FA © 2014

Wine Company recorded purchases at net amount. On December 10, the entity purchased merchandise on
account, P4,000,000, terms 2/10, n/30. The entity returned P300,000 of the December 10 purchase and
received credit on account. The account had not been paid on December 31.

xi. What amount should be recorded as purchase return?

A. 270,000 C. 300,000
B. 294,000 D. 306,000
xii. By how much should the account payable be adjusted on December 31?
A. 0 C. 80,000
B. 74,000 D. 86,000

Inventoriable cost
xiii. Dean Sportswear regularly buys sweaters from Mill Company and is allowed trade discounts of 20% and 10%
from the list price. Dean made a purchase during the year, and received an invoice with a list price of P600,000,
a freight charge of P15,000 and payment terms of 2/10, n/30. What is the cost of the purchase?
A. 432,000 C. 438,360
B. 435,000 D. 447,000 P1 © 2014

xiv. On December 26, 2014, Branigan Company purchased goods costing PI,000,000. The terms were FOB shipping
point. The goods were received on December 28,2014. Costs incurred by the entity in connection with the
purchase and delivery of 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. 1,030,000 C. 1,055,000
B. 1,050,000 D. 1,067,000 FA © 2014

xv. Eagle Company incurred the following costs in relation to a certain product:
Direct materials and labor 180,000
Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000
What is the correct measurement of the product?
A. 195,000 C. 225,000
B. 205,000 D. 240,000 FA © 2014

xvi. Parrot Company provided the following inventory data:

Materials 300,000
Production labor cost 330,000
Production overhead 120,000
General administration cost 100,000
Marketing cost 50,000
What is the value of the completed inventory?
A. 630,000 C. 850,000
B. 750,000 D. 900,000 FA © 2014

xvii. On December 28, 2014, Kerr Company purchased goods costing P500,000. The terms were FOB destination.
The costs incurred in connection with the sale and delivery of the goods were:
Packaging for shipment 10,000
Shipping 15,000
Special handling charges 25,000
These goods were received on December 31,2014. On December 31, 2014, what total cost should be included
in inventory?
A. 500,000 C. 535,000
B. 520,000 D. 545,000 FA © 2014

xviii. Stone Company had the following transactions during December 2014:
Inventory shipped on consignment to Beta Company 1,800,000
 Freight paid by Stone 90,000
Inventory received on consignment from Alpha Company 1,200,000
Freight paid by Alpha 50,000
No sales of consigned goods were made in December 2014. What amount should be included in inventory on
December 31,2014?
A. 1,200,000 C. 1,800,000
B. 1,250,000 D. 1,890,000 P1 © 2014

xix. Fenn Company provided the following information for the current year:
Merchandise purchased for resale 4,000,000
Freight in 100,000
Freight out 50,000
Purchase returns 20,000
Interest on inventory loan 200,000
What is the inventoriable cost of the purchase?
A. 4,030,000 C. 4,130,000
B. 4,080,000 D. 4,280,000 FA © 2014

xx. Brilliant Company has incurred the following costs during the current year:
Cost of purchases based on vendors' invoices 5,000,000
Trade discounts on purchases already deducted from vendors' invoices 500,000
Import duties 400,000
Freight and insurance on purchases 1,000,000
Other handling costs relating to imports 100,000
Salaries of accounting department 600,000
Brokerage commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
After-sales warranty costs 250,000
What is the total cost of purchases?
A. 5,700,000 C 6,500,000
B. 6,100,000 D. 6,700,000 FA © 2014

Inventories
xxi. Tequila Company had at year-end P200,000 office supplies, P1,350,000 raw materials, P2,950,000 goods in
process, P3,600,000 finished goods and P300,000 prepaid insurance. What total amount should be reported as
inventories in the statement of financial position at year-end?
A. 3,600,000 C. 7,900,000
B. 3,800,000 D. 8,100,000 FA © 2014

xxii. Corolla Company incurred the following costs:

Materials 700,000
Storage costs of finished goods 180,000
Delivery to customers 40,000
Irrecoverable purchase taxes 60,000
At what amount should the inventory be measured?
A. 760,000 C. 940,000
B. 880,000 D. 980,000 FA © 2014

xxiii. Aman Company provided the following data:

Items counted in the bodega 4,000,000
Items included in the count specifically segregated per sale contract 100,000
 Items in receiving department, returned by customer, in good condition 50,000
Items ordered and in the receiving department 400,000
Items ordered, invoice received but goods not
received. Freight is on account of seller. 300,000
Items shipped today, invoice mailed, FOB shipping point 250,000
Items shipped today, invoice mailed, FOB destination 150,000
Items currently being used for window display 200,000
Items on counter for sale 800,000
Items in receiving department, refused because of damage 180,000
Items included in count, damaged and unsalable 50,000
Items in the shipping department 250,000
What is the correct amount of inventory?
A. 5,150,000 C. 5,800,000
B. 5,700,000 D. 6,000,000 P1 © 2014

xxiv. Lunar Company included the following items under inventory:

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, including 50% profit on cost 750,000
Finished goods in hands of consignees including 40% profit on sales 400,000
Finished goods in transit to customers, shipped FOB destination at cost 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 P30,000 330,000
Goods held on consignment, at sales price, cost P150,000 200,000
What is the correct amount of inventory?
A. 5,375,000 C. 5,500,000
B. 5,250,000 D. 5,540,000 P1 © 2014

xxv. Ram Company provided the following information at the end of current year.
Finished goods in storeroom, at cost, including overhead
of P400,000 or 20%. 2,000,000
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. 4,000,000 C. 4,170,000
B. 4,090,000 D. 4,270,000 P1 © 2014
Adjusted inventory balance
xxvi. Brandy Company took a physical inventory at the end of the year and determined that P2,600,000 of goods were
on hand. In addition, the entity determined that P200,000 of goods purchased in transit shipped FOB shipping
point were actually received two days after the physical count and that the entity had P300,000 of goods out on
consignment. What amount should be reported as inventory at year-end?
A. 2,600,000 C. 2,900,000
B. 2,800,000 D. 3,100,000 FA © 2014

xxvii. Scotch Company took a physical inventory at the end of the year and determined that P1,900,000 of goods were
on hand. In addition, the entity determined that P240,000 of goods purchased were in transit shipped FOB
destination. The goods were actually received three days after the inventory count. The entity sold P100,000
worth of inventory FOB destination. Such inventory is in transit at year-end. What amount should be reported as
inventory at year-end?
A. 1,900,000 C. 2,140,000
B. 2,000,000 D. 2,240,000 FA © 2014

xxviii.The audit of Joust Company revealed a physical inventory on December 31, 2014 with a cost of P4,000,000. The
following items were excluded from the count:
* A special machine, fabricated to order for a customer costing P400,000, was finished and specifically
segregated on December 31, 2014. The customer was billed on that date and the machine excluded from
inventory although it was shipped on January 4, 2015.
• Merchandise costing P50,000 shipped by a vendor FOB seller on December 28, 2014 and received b3?
Joust Company on January 10, 2015.
What is the correct inventory on December 31, 2014?
A. 4,000,000 C. 4,400,000
B. 4,050,000 D. 4,450,000 FA © 2014

xxix. Honor Company reported inventory on December 31, 2014 at P1,500,000 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, 2014.
These goods had a cost of P30,000 and were picked up by the carrier on January 10,2015.
 Goods shipped FOB destination on December 28, 2014 from a vendor to Honor Company were received on
January 4, 2015. The invoice cost was P50,000.
What amount should be reported as inventory on December 31, 2014?
A. 1,470,000 C. 1,500,000
B. 1,480,000 D. 1,550,000 FA © 2014

i. Answer is (A).
Accounts payable per book 2,000,000
Goods lost in transit, FOB shipping point 100,000
Purchase return (50,000)
Adjusted balance 2,050,000

ii. Answer is (A).

Accounts payable per book 4,500,000
Undelivered entity checks 2,000,000
Goods purchased and received on Dec. 28, 2014 750,000
 Purchase discount (2% x 750,000) (15,000) 735,000
Total accounts payable 7,235,000
The undelivered checks should be adjusted as follows:
Cash 2,000,000
Accounts payable 2,000,000

iii. Answer is (B).

Accounts payable per book 2,200,000
Goods shipped FOB shipping point
on December 22, 2014 and lost in transit 40,000
Purchase returns (70,000)
Advance payment erroneously debited to accounts payable 500,000
Adjusted accounts payable 2,670,000
Kew Company shall suffer the loss of the goods in transit because the goods are shipped FOB shipping
point. Appropriately, Kew Company must file a claim against the common carrier.

iv. Answer is (C).

Purchases through March 15, 2014 (4,900,000 / 98%) 5,000,000
Inventory-12/31/2013, at cost (1,500,000/ 150%) 1,000,000
Total gross amount to be paid 6,000,000

v. Answer is (C).
Accounts payable per book 900,000
Undelivered checks 400,000
Unrecorded purchases on Dec. 28 (150,000 x 98%) 147,000
Purchase on December 20 (200,000 x 95%) 190,000
Adjusted accounts payable 1,637,000

vi. Answer is (C).

List price 5,000,000
Trade discounts: 30% x 5,000,000 (1,500,000)
3,500,000
20% x 3,500,000 ( 700,000)
Invoice price 2,800,000
Cash discount (2% x 2,800,000) ( 56,000)
Net amount 2,744,000
Add: Reimbursement of delivery cost 200,000
Total remittance from Burr 2,944,000

vii. Answer is (A).

Accounts payable 1,350,000
Cash 1,323,000
Inventory 27,000

viii. Answer is (D).

Accounts payable at gross 1,500,000
Discounts available in the accounts payable balance (10,000)
Accounts payable at net 1,490,000
ix. Answer is (B).
Purchases of IBM compatibles 1,700,000
Purchases of commercial software packages 1,200,000
Returns and allowances (50,000)
Net purchases 2,850,000
Discounts available on purchases (2% x 2,850,000) 57,000
Purchase discounts taken (17,000)
Discount lost 40,000

x. Answer is (C).
Net method
Purchases (800,000 + 1,000,000) 1,800,000
Purchase discount taken (2% x 800,000) (16,000)
Purchase discount not taken (2% x 1,000,000) (20,000)
Net amount 1,764,000
Under the net method, the purchase discount is deducted from purchases regardless of whether taken or not
taken.
Gross method
Purchases 1,800,000
Purchase discount taken (16,000)
Net purchases 1,784,000
Under the gross method, the purchases are recorded at gross and only the purchase discount taken is deducted
from purchases in determining cost of goods available for sale.

xi. Answer is (B).

Purchase return, gross 300,000
Purchase discount 300,000 x 2% (6,000)
Net purchases 294,000

xii. Answer is (B).

Purchase discount (4,000,000 – 300,000) x 2% 74,000

xiii. Answer is (D).

List price 600,000
Trade discount (20% x 600,000) (120,000)
Balance 480,000
Trade discount (10% x 480,000) ( 48,000)
Invoice price 432,000
Freight charge 15,000
Total cost of purchase 447,000
Purchases are normally recorded at gross. Thus, the cash discount is ignored.

xiv. Answer is (C). All costs incurred except abnormal freight

xv. Answer is (D). All costs are inventoriable.

xvi. Answer is (B).

Materials 300,000
Production labor cost 330,000
Production overhead 120,000
 Value of completed inventory 750,000

xvii. Answer is (A). When the shipping terms are FOB destination, the seller is responsible for costs incurred
in transporting the goods to the buyer.

xviii. Answer is (D).

Inventory shipped on consignment to Beta 1,800,000
Freight paid by Stone 90,000
Total cost of consigned inventory 1,890,000

xix. Answer is (B).

Merchandise purchased 4,000,000
Freight in 100,000
Purchase returns (20,000)
Inventoriable cost 4,080,000

xx. Answer is (D).

Cost of purchases 5,000,000
Import duties 400,000
Freight and insurance 1,000,000
Other handling costs 100,000
Brokerage commission 200,000
Total cost of purchases 6,700,000

xxi. Answer is (C).

Raw materials 1,350,000
Goods in process 2,950,000
Finished goods 3,600,000
Total 7,900,000

xxii. Answer is (A).

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

xxiii. Answer is (B).

Items counted in the bodega 4,000,000
Items included in count specifically segregated ( 100,000)
Items returned by customer 50,000
Items ordered and in receiving department 400,000
Items shipped today, FOB destination 150,000
Items for display 200,000
Items on counter for sale 800,000
Damaged and unsalable items included in count ( 50,000)
Items in the shipping department 250,000
5,700,000

xxiv. Answer is (C).

Materials 1,400,000
Goods in process 650,000
 Finished goods in factory 2,000,000
Finished goods in entity-owned retail store (750,000/150%) 500,000
Finished goods in the hands of consignees (400,000 x 60%) 240,000
Finished goods in transit 250,000
Finished goods out on approval 100,000
Materials in transit (330,000 + 30,000) 360,000
Correct inventory 5,500,000

xxv. Answer is (C).

Finished goods 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 4,170,000

xxvi. Answer is (D).

Goods on hand 2,600,000
Goods purchased in transit 200,000
Goods out on consignment 300,000
Total inventory 3,100,000

xxvii. Answer is (B).

Goods on hand 1,900,000
Goods sold in transit 100,000
Total inventory 2,000,000

xxviii. Answer is (B).

Physical inventory 4,000,000
Merchandise shipped FOB seller 50,000
Correct inventory 4,050,000

xxix. Answer is (C). Physical count = 1,500,000