1st Midterm Departmental Examinations Reviewer

A.Y. 2024 - 2025

Subject Code ACCO 201

Course Subject Name Intermediate Accounting 2

1. Inventories affect
a) only the balance sheet
b) only the income statement
c) both the balance sheet and the income statement
d) neither the balance sheet nor the income statement

2. An auto manufacturer would classify vehicles in various stages of

production as
a) Finished goods
b) Merchandise inventory
c) Raw materials
d) Work in process

3. Olivia Rodrigo’s goods in transit at December 31 include:

Sales made: Purchases made

(1) FOB Destination (2) FOB Destination
(3) FOB Shipping Point (4) FOB Shipping Point

Which items should be included in Olivia’s inventory at December 31?

a) (3) and (2)

b) (1) and (4)
c) (1) and (2)
d) (3) and (4)

4. Cost of goods sold is computed from the following equation:

a) Beginning inventory - cost of goods purchased + ending inventory
b) Sales - cost of goods purchased + beginning inventory - ending inventory
c) Sales + gross profit - ending inventory + beginning inventory
 d) Beginning inventory + cost of goods purchased - ending inventory

5. Which of the following is NOT a common cost flow assumption used in

costing inventory?
a) First-in, first-out
b) Middle-in, first-out
c) Last-in, first out
d) Average cost

6. Factory supplies to be consumed in the production process are reported

as
a) Inventory
b) Property, plant and equipment
c) Investment property
d) Intangible asset

7. Cost of goods sold is the same under a periodic system and a perpetual
system when an entity uses
a) FIFO
b) LIFO
c) Weighted average
d) Specific identification

8. Which term represents the deduction from the invoice price of purchase…
a) Sales discount
b) Purchase discount
c) Trade discount
d) Purchase and return allowance

9. 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
10. How should trade discounts be dealt with when valuing inventories at the
lower of cost and net realizable value?
a) Added to cost
b) Ignored
c) Deducted in arriving at NRV
d) Deducted in arriving at cost

11. Which statement is true about biological assets?

a) Biological assets are measured at fair value less cost of disposal
b) When fair value cannot be determined reliably, the biological asset shall be
measured at cost less accumulated depreciation and impairment loss
c) There is a presumption that the fair value of biological asset can be
measured reliably
d) All of these statements are true about biological assets

12. All of the following can be considered bearer plant, except

a) Coconut tree
b) Grape vine
c) Rubber tree
d) Tree in a forest plantation to be harvested and sold as log or lumber

13. Which of the following is unlikely to be used in fair value measurement of

biological asset?
a) Quoted market price
b) The most recent market transaction price
c) The present value of the expected net cash flows
d) External independent valuation

14. A gain or loss arising on the initial recognition of a biological asset and
from a change in the fair value less cost of disposal of a biological asset
shall be included in
a) The profit or loss for the period
b) Other comprehensive income
c) A revaluation reserve
d) Retained earnings
15. When agricultural produce is harvested, the harvest shall be accounted
for as inventory at
a) The fair value less cost of disposal at the point of harvest
b) The historical cost of the harvest
c) The historical cost less accumulated impairment loss
d) Fair value

16. According to IASB, bearer animals are accounted for as

a) Biological assets
b) Property, plant and equipment
c) Investment property
d) Agricultural produce

17. Agricultural produce as it grows on a bearer plant is measured at year-end

prior to harvest at
a) Fair value
b) Fair value less cost of disposal
c) Fair value plus cost of disposal
d) Fair value less cost of disposal at the point of harvest

18. It is the management by an entity of the biological transformation and

harvest of biological assets for sale or for conversion into agricultural
produce or into additional biological asset
a) Agricultural activity
b) Economic activity
c) Biological activity
d) Development activity

19. Farm lots held by an entity engaged in agriculture are classified on the
entity’s statement of financial position statements as
a) Agricultural assets
b) Agricultural produce
c) Bearer assets
d) Property, plant and equipment
20. An entity owns a number of herds of cattle. Where should the change in
fair value of herds of cattle be recognized in the financial statements?
a) In the profit and loss
b) In the other comprehensive income
c) In the profit or loss or other comprehensive income
d) In the statement of cash flows

21. Which should be expensed immediately?

a) Administrative overhead
b) Initial operating loss
c) Cost of relocating or reorganizing part or all of an entity’s operation
d) All of these are expensed immediately

22. A nonmonetary exchange is recognized at fair value of the asset

exchanged unless
a) Exchange has commercial substance
b) Fair value is not determinable
c) The assets are similar in nature
d) The assets are dissimilar

23. Which of the following is not capitalized into the cost of property, plant
and equipment?
a) Cost of excess materials from a purchasing error
b) Cost of testing whether the asset works correctly
c) Initial delivery and handling cost
d) Cost of preparing the site of installation

24. Which term best describes the removal of the carrying amount of
property, plant and equipment from the statement of financial position?
a) Derecognition
b) Impairment
c) Writeoff
d) Depreciation
25. An entity purchased a plant asset under a deferred payment contract. The
agreement was to pay P10,000 at the time of purchase and P10,000 at the
end of each of the next five years. The plant asset is measured initially at
a) The present value of a P10,000 ordinary annuity
b) P60,000
c) P60,000 plus imputed interest
d) P60,000 less imputed interest

26. When property is acquired by issuing equity shares, which of the following
is the best basis for establishing the historical cost of the acquired asset?
a) Historical cost of the asset to the seller
b) Historical cost of a similar asset
c) Fair value of the asset received
d) Fair value of shares issued

27. The cost of an item of property, plant and equipment acquired in a

non-monetary exchange is measured at the
a) Carrying amount of the asset given up
b) Fair value of the asset given up
c) Carrying amount of the asset received
d) Fair value of the asset received

28. The residual value of an item of property, plant and equipment is

a) The amount the entity estimates it would receive currently for the asset if
the asset were already of the age and in the condition expected at the end
of its useful life
b) The amount, inclusive of the effects of inflation, that an entity expects to
receive in the future on the asset’s actual retirement date
c) Either a or b
d) Neither a nor b

29. Useful life of property, plant and equipment is

a) The period over which an asset is expected to be available for use by an
entity
b) The number of production or similar units expected to be obtained from
the asset by an entity
 c) Either a or b
d) Neither a nor b

30. Carrying amount is the

a) Cost of an asset or the amount substituted for cost in the financial
statements, less its residual value
b) Amount of cash or cash equivalent paid or the fair value of the other
consideration given to acquire an asset at the time of its acquisition or
construction
c) Net amount which the enterprise expects to obtain for an asset at the end
of its useful life after deducting the expected cost of disposal
d) Amount at which an asset is recognized in the balance sheet after
deducting any accumulated depreciation and accumulated impairment
losses

Use the following information for the next two questions, 31 and 32.

In the first month of operations, Kim Taehyung made three purchases of

merchandise in the following sequence: (1) 200 units at P6.00, (2) 300 units
at P7.00, and (3) 400 units at P8.00. Assuming there are 300 units on hand,
compute the cost of the ending inventory under (31) the FIFO method and
(32) the LIFO method. Taehyung uses a periodic inventory system.

31. FIFO method

a) P2,400
b) P1,200
c) P2,100
d) P1,800

32. LIFO method

a) P1,200
b) P1,700
c) P700
d) P1,900
 Olivia Sportswear, Inc. regularly buys sweaters from Bon Company and is
allowed a trade discount of 20% and 10% from the list price. Galleria
made a purchase on March 20, 2023, and received an invoice with a list
price of P90,000, a freight charge of P5,000, and payment terms of net 30
days.

33. What is the total cost of the inventory purchase?

a) P63,000
b) P64,000
c) P69,000
d) P69,800

Use the following information for the next two questions, 34 and 35.

Cabello’s Company purchased an item of merchandise quoted and listed

at P150,000 under the following terms: Trade discounts of 15%, 10%, 5%,
2/10, n/30.

34. What was the invoice price of the merchandise?

a) P100,900.00
b) P105,000.00
c) P109,012.50
d) P106,832.25

35. How much was the cash payment if settlement was made within the
discount period?
a) P106,832.25
b) P104,693.50
c) P102,900.00
d) P100,842.00

On October 1, 2022, Indomitable Company sold 100,000 gallons of heating

oil at P30 per gallon. Fifty thousand gallons were delivered on December
15, 2022, and the remaining 50,000 gallons were delivered on January 15,
2023.
 Payment terms were 50% due on Oct. 1, 2022, 25% on the first delivery,
and the remaining 25% due on the second delivery.

36. What amount of sales revenue should be recognized during 2022?

a) P3,000,000
b) P1,500,000
c) P2,250,000
d) P1,000,000

Luis Company had sales of P4,000,000 during December of the current

year. Experience has shown that merchandise equaling 7% of sales will be
returned within 30 days and an additional 3% will be returned within 90
days. Retumed merchandise is readily resalable.

In addition, merchandise equaling 15% of sales will be exchanged for

merchandise of equal or greater value.

37. What amount should be reported for net sales for the month of
December?
a) P3,600,000
b) P3,400,000
c) P3,120,000
d) P3,000,000

Olivia’s Company had the following consignment transactions during the

current year:

Inventory shipped on consignment to a consignee 600,000

Freight paid by Olivia Company 50,000
Inventory received on consignment from a consignor 800,000
Freight prepaid by consignor 50,000

No sales of consigned goods were made during the current year.

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

a) P700,000
 b) P650,000
c) P850,000
d) P600,000

The inventory on hand on December 31, 2023 for Ari Corporation is valued
at a cost of P3,000,000. The following items were not included in the
inventory:

a. Goods purchased in transit shipped FOB destination, with price of

P300,000, which includes freight charge of P30,000.

b. Goods sold in transit FOB destination with invoice price of P490,000

which includes freight charge of P40,000 to deliver the goods.

c. Goods held on consignment by Ari at a sales price of P100,000,

excluding a 20% commission on the sales price. Freight paid by Ari,
P10,000.

d. Goods purchased in transit FOB shipping point with invoice of P600,000.

Freight cost amounts to P60,000.

e. Goods out on consignment with sales price of P300,000. Shipping cost

amounts to P30,000.

The Company sells goods at 150% of cost.

39. What is the correct inventory on December 31, 2023?

a) P4,400,000
b) P4,190,000
c) P4,160,000
d) P4,100,000

Mendes Company's inventory at December 31, 2023, was 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 F.O.B.
shipping point on December 31, 2023. These goods had a cost of P30,000
and were picked up by the carrier on January 10, 2024.

Goods shipped F.O.B. shipping point on December 28, 2023, from a vendor
to Robinson were received on January 4, 2024. The invoice cost was
P50,000.

40. What amount should Robinson Company report as inventory on its

December 31, 2023 statement of financial position?

a) P1,470,000
b) P1,480,000
c) P1,520,000
d) P1,550,000

Use the following information for the next two questions, 41 and 42.

Olivia Company provided the following assets in a forest plantation and

farm

Freestanding trees P5,000,000

Land under trees P600,000
Roads in forest P300,000
Animals related to recreational activities P1,000,000
Bearer plants P1,500,000
Bearer animals P2,000,000
Agricultural produce growing on bearer plants P800,000
Agricultural produce harvested P1,200,000
Plants with dual use P1,400,000

41. What total amount should be reported as biological assets?

a) P7,800,000
b) P7,200,000
c) P8,400,000
 d) P9,200,000

42. What total amount should be included in property, plant and equipment?
a) P4,600,000
b) P3,400,000
c) P1,800,000
d) P4,200,000

Use the following information for the next two questions, 43 and 44.

Sabrina Company produced milk for sale to local and national ice cream
producers. The entity began operations at the beginning of current year by
purchasing milk cows for P8,000,000.

The entity provided the following information for the current year

Acquisition cost, Jan. 1 P8,000,000

Change in fair value due to growth and price changes P2,500,000
Decrease in fair value due to harvest P250,000
Milk harvested during the year but not yet sold P400,000

43. What amount of gain on change in fair value should be recognized for
biological assets in the current year?
a) P2,500,000
b) P2,250,000
c) P2,900,000
d) P2,650,000

44. What amount of gain on change in fair value should be reported for
agricultural procedure in the current year?
a) P200,000
b) P400,000
c) P150,000
d) P0
 Use the following information for the next two questions, 45 and 46.

At the beginning of the current year, Camila Company purchased a

vineyard costing P6,000,000. It was determined that the grape vines can
produce fruit for a period of 8 years.

During the year, the entity harvested grapes with a fair value less cost of
disposal of P2,000,000. By the end of the year, the grapes were sold for
P3,500,000.

The entity incurred operating expenses of P500,000. The entity used the
perpetual method.

45. What is the gross income on sales?

a) P3,500,000
b) P1,500,000
c) P2,000,000
d) P1,750,000

46. What is the pretax net income?

a) P1,250,000
b) P2,750,000
c) P2,250,000
d) P3,000,000

Use the following information for the next three questions, 47, 48, and 49.

The Olivia Rodrigo Farms harvested corn with a fair value of P350,000 at
the date of harvest. Estimated cost to sell is P10,000. At year-end, the fair
value declined slightly to P330,000 and no corn was sold at year-end. On
January 15, 2023, all of the corn had been sold for P345,000, the company
incurring selling cost of P9,500.

47. At what amount shall the harvested corn be initially recognized?

a) P330,000
b) P335,500
 c) P340,000
d) P350,000

48. At year-end statement of financial position, the inventory of corn shall be

presented at
a) P320,000
b) P330,000
c) P335,500
d) P340,000

49. How much profit (loss) did the company realize from the sale of the corn in
2023?
a) P5,500
b) P15,000
c) P15,500
d) P25,000

Carpenter Company is a producer of coffee. The entity is considering the

valuation of harvested coffee beans.

Industry practice is to value the coffee beans at market value and use as
reference a local publication "Accounting for Successful Forms".

On December 31, 2022, the entity harvested coffee beans costing

3,000,000 and with a fair value less cost of disposal of 3,500,000 at the
point harvest. Because of the long aging and maturation process after
harvest, the harvested coffee beans were still on hand on December 31,
2023.

On December 31, 2020, the fair value less cost of disposals 3,900,000 and
the net realizable value is P3,200,000.

50. What is the measurement of the coffee beans inventory on December 31,
2023?
a) P3,000,000
b) P3,500,000
 c) P3,200,000
d) P3,900,000

Jungkook Company used the cost model to account for noncurrent

assets. On July 1, 2022, the entity classified an item as held for sale. At the
time, the carrying amount was P6,000,000, the fair value was estimated at
P4,500,000, and the cost of disposal was P200,000. On December 31, 2022,
the equipment was sold for a net profit of P3,500,000.

51. What amount should be reported as an impairment loss in 2022?

a) P1,700,000
b) P3,500,000
c) P1,500,000
d) P900,000

At the beginning of current year, Philippines Company purchased

marketable equity securities to be held as "trading" for P3,000,000. The
entity also paid transaction cost amounting to P80,000.

At the end of the year, the securities had a market value of P3,750,000 and
the transaction cost that would be incurred on sale is estimated at
P110,000. No securities were sold during the current year.

52. What amount Philippines Company initially recognize its investment?

a) P3,750,000
b) P3,500,000
c) P3,080,000
d) P3,000,000

Black Company owns 30,000 ordinary shares of Pink Company acquired

on July 31, 2021, at a total cost of P1,100,000. On December 1, 2021, Red
received 30,000 stock rights from Velvet. Each right entitles the holder to
acquire one share at P 45. The market price of Velvet’s share on this date
was P50 and the market price of each right was P10. Red sold its rights on
December 31, 2021, for P450,000 less a P10,000 commission.
53. What amount should be reported as gain from the sale of the rights?
a) P140,000
b) P150,000
c) P240,000
d) P250,000

Use the following information for the next two questions, 54 and 55.

The Espresso Company is now a growing company. An acquisition of land

and construction of a new building was undertaken. The following
information relates to the scenario:

Land, at purchase price 700,000

Legal fees related to land purchase 45,000
Full construction cost of new building 5,780,000
Professional fees paid to the architect 100,000
Sale of scrap materials from the old building previous situated in the land
60,000
Demolition cost of old building for the construction of the new building
90,000

54. How much is the Cost of Land?

a) P750,000
b) P745,000
c) P850,000
d) P800,000

55. How much is the Cost of Building?

a) P5,970,000
b) P6,910,000
c) P5,710,000
d) P5,810,000

Ariana Company borrowed P4,000,000 on a 10% note payable to finance a

new warehouse Ging is constructing for its own use. The only other debt
 on Ging's books is a P6,000,000, 12% mortgage payable on an office
building. The construction of the warehouse was completed in six months
and the average accumulated expenditures amounted to P4,750,000.

56. What is the amount of interest that Ging Company should capitalize?
a) P200,000
b) P237,500
c) P245,000
d) P490,000

Shawn Company traded in an old machine having a carrying amount of

P16,800, and paid a cash difference of P6,000 for a new machine having a
total cash price of P20,500.

57. What amount of loss should the X-ray Company recognize on this
exchange?
a) P2,300
b) P6,000
c) P0
d) P3,700

Ariana, Inc., engaged in manufacturing business, purchased equipment

for P300,000 on January 1, 2022 to be used in its operations. The
equipment was estimated to have a useful life of 8 years, with salvage
value estimated at P30,000. Among the various methods of depreciation,
Ariana selected the SYD method.

58. On December 31, 2023, the related accumulated depreciation should have
a balance of
a) P37,500 less than under the straight-line method.
b) P37,500 less than under the double-declining balance.
c) P45,000 greater than the straight-line method.
d) P45,000 greater than the double-declining balance.

The Grande Company purchased for P240,000 cash on July 1, 2022 a

machine with an estimated useful life of 10 years and an estimated
 residual value of P12,000. Depreciation was recorded on a monthly basis
using the straight-line method. The machine was sold for P130,000 on
September 30, 2027.

59. The sale resulted in a

a) P9,700 gain
b) P9,700 loss
c) P21,700 gain
d) P21,700 loss

An old cooler with a recorded cost of P150,000 and accumulated

depreciation of P140,000 was sold for P4,000. A new cooler with marked
price of P200,000 was purchased on February 10, 2023. Freight charge of
P3,000 and installation cost of P6,000 were paid.

60. What is the cost of the new cooler?

a) P200,000
b) P204,000
c) P210,000
d) P209,000
 Summary of Answers

1. C 31. A
2. D 32. D
3. B 33. D
4. D 34. C
5. B 35. A
6. A 36. B
7. A 37. A
8. B 38. B
9. A 39. B
10. D 40. D
11. D 41. D
12. D 42. B
13. D 43. B
14. A 44. B
15. A 45. B
16. A 46. C
17. B 47. C
18. A 48. A
19. A 49. C
20. A 50. C
21. D 51. A
22. B 52. D
23. A 53. A
24. A 54. B
25. D 55. A
26. C 56. C
27. B 57. A
28. A 58. C
29. C 59. A
30. D 60. D
 Summary of Answers – Explained

31. (A)
Units on hand 300
Multiply: Cost per unit 8.00
Cost of ending inventory 2,400

32. (D)
Units on first purchase 200
Multiply: Cost per unit 6.00
1,200

Units on second purchase 100

Multiply: Cost per unit 7.00
700

Cost of ending inventory 1,900

33. (D)
List price 90,000
Trade discounts 900,000 x 20% (18,000)
72,000
720,000 x 10% (7,200)
Invoice price 64,800
Freight charge 5,000
Cost of purchase 69,800

34. (C)
Invoice price 109,012.50
150,000 x .85 x .90 x .95

35. (A)
Invoice price 109,012.50
Cash discount (109,012.50 x 2%) (2,180.25)
Cash payment w/in the discount period 106,832.25
36. (B)
50,000 gallons x P30 = 1,500,000
Whichever are successfully delivered during the year will be recognized as sales
revenue

37. (A)
Gross sales 4,000,000
Estimated sales return (400,000)
4,000,000 x 10%
Net sales 3,600,000

38. (B)
Inventory shipped on consignment to consignee 600,000
Freight paid by Olivia’s company 50,000
Consigned inventory 650,000

39. (B)
Reported inventory 3,000,000
Goods sold in transit shipped FOB destination
not included in inventory (490,000-40,000/1.5) 300,000
Goods purchased in transit shipped FOB shipping
point + freight cost 660,000
Goods out on consignment (300,000/1.5 +30,000) 230,000
Correct inventory, Dec. 31 4,190,000

40. (D)
Reported inventory, Dec. 31 1,500,000
Goods still in transit purchased FOB shipping point 50,000
Correct amount of inventory 1,550,000

41. (D)
Freestanding trees 5,000,000
Bearer animals 2,000,000
Agricultural produce growing on bearer plants 800,000
Plants with dual use 1,400,000
Total biological assets 9,200,000
42. (B)
Land under trees 600,000
Roads in forest 300,000
Animals related to recreational activities 1,000,000
Bearer plants 1,500,000
Total PPE 3,400,000

43. (B)
Change in fair value due to growth and price changes 2,500,000
Less: Decrease in fair value due to harvest (250,000)
Net gain from Biological Asset 2,250,000

44. (B)
(Dr) Inventory 400,000
(Cr) Gain on agricultural produce 400,000

45. (B)
Sales 3,500,000
Cost of goods sold (2,000,000)
Gross income 1,500,000

46. (C)
Gross income 1,500,000
Gain from agricultural produce-harvest grapes 2,000,000
Operating expenses (500,000)
Depreciation in bearer plants (6M / 8 years) (750,000)
Pretax net income 2,250,000

47. (C)
Fair value 350,000
Less: Estimated cost to sell (10,000)
Initial value 340,000

48. (A)
Fair value 330,000
Less: Estimated cost to sell (10,000)
Intentory value at Dec. 31 320,000
49. (C)
Net selling price 335,500
Inventory value at Dec. 31 (320,000)
Profit on sale 15,500

50. (C)
Fair value measurement stops at the point harvest and PAS 2 on inventory applies
after such date.

Accordingly, the coffee bean inventory shall be measured at the lower of cost and net
realizable value on December 31, 2020.

The fair value less cost of disposal is P3,500,000 at the point of harvest is the initial
cost of coffee beans inventory for purposes of applying PAS 2.

The net realizable value of P3,200,000 is the measurement on December 31, 2020
because this is lower than the deemed cost of P3,500,000.

51. (A)
Carrying value 6,000,000
FV-CTS 4,500,000
200,000 4,300,000
Impairment loss 1,700,000

52. (D)
Cost 3,000,000
Initial measurement 3,000,000

53. (A)
Net sale price 440,000
450,000 - 10,000
Initial cost of right sold (300,000)
30,000 x 10
Gain on sale of rights 140,000

54. (B)
Purchase price 700,000
Legal fees 45,000
Cost of land 745,000

55. (A)
Construction cost 5,780,000
Professional fees 100,000
Demolition cost 90,000
Cost of building 5,970,000

Note: In the recent amendment of IAS 16, the scrap materials sold are no longer
deducted in order to arrive at the initial cost.

56. (C)
Interest on specific borrowing 200,000
4M x 10% x 6/12
Interest on general borrowings 45,000
4.75M - 4M = 750,000 x 12% x 6/12
Total capitalized interest 245,000

57. (A)
Carrying value of asset given up 16,800
Fair value of asset given up (14,500)
20,500 - 6,000
Loss on exchange 2,300

58. (C)
SYD method 112,500
270,000 x (8+7)/36
Straight line method 67,500
270,000/8 = 33,750 x 2
Excess of SYD over SL accumulated depreciation 45,000

59. (A)
Sales price 130,000
Carrying amount of machine
Cost 240,000
Accumulated depreciation 119,700 120,300
 228,000/120 months = 1,900 x 63 months
Gain on sale 9,700

60. (D)
Marked price 200,000
Freight charge 3,000
Installation cost 6,000
Cost of the new cooler 209,000