PA1- INVENTORIES MULTIPLE MULTIPLE CHOICE QUESTIONS – THEORY 1. Inventories Inventories are assets assets (choose (choose the incorrect incorrect one) A. Held for for sale in the ordinar ordinary y course course of busines business. s. B. In the the process process of producti production on for for sale. sale. C. In the form of materi materials als or supplies supplies to be consumed consumed in the production production process process or in the rendering of services. D. Held for use use in the producti production on or supply supply of goods and services. services.
. !he costs of purchas purchasee of inventories inventories comprise comprise the purchase purchase price" price" import import duties duties and other ta#es (other than those subse$uently recoverable b y the entity from the ta#ing authorities)" and transport" handling and other costs directly attributable to the ac$uisition of finished goods" materials and services. !rade discounts" rebates and o ther similar items are deducted in determining the costs of purchase. !he costs of conversion of inventories include costs directly related to the units of production such as direct labor. !hey also include a systematic allocation of fi#ed and variable production overheads that are incurred incu rred in converting materials into finished goods. A. !rue" %alse C. %alse" !rue B. !r !rue" !rue D. %alse" %alse &. !he follo'in follo'ing g are costs costs e#cluded e#cluded from from the the cost of of inventories inventories"" e#cept e#cept A. Abnormal Abnormal amounts of 'asted 'asted materials" materials" labor labor or other production production costs costs B. *torage *torage costs" unless unless those costs are are necessary necessary in the production production process before before a further production storage C. Administrat Administrative ive overheads overheads that do not contribute contribute to bringing bringing inventories inventories to their present location and condition and D. Impor Importt dutie dutiess +. ,hich statements statements are incorrect incorrect regarding regarding formulasformulasA. *pecific *pecific identificati identification on of cost means that specific specific costs costs are attributabl attributablee to identified inventory. B. !he %I% formula formula assumes assumes that the the items of inventor inventory y that 'ere purchased purchased or produced last are sold first" and conse$uently the items remaining in inventory at the end of the period are those earlier purchased or produced. C. /nder the 'eighted 'eighted average average cost formula" formula" the cost cost of each item is is determined determined from 'eighted average of the cost of similar items at the beginning of each period and the cost of similar items purchased or produced during the period. D. !he average average cost formula formula may be calculated calculated on a periodic periodic basis" basis" or as each additional shipment is received" depending upon up on the circumstances of the entity. 0. ,hen using using the moving moving average average method of inventory inventory valuation" valuation" a ne' unit unit cost cost must must be computed after each
PA1- INVENTORIES
A. B. C. D.
pur purchas chasee issuan issuance ce from from inven inventory tory purchas purchasee and issuanc issuancee from inven inventory tory mont month hen end d
2. !he retai retaill invent inventory ory metho method d is charac character teri3e i3ed d by A. the recor recordin ding g of sales sales at at cost. cost. B. the recordi recording ng of purchase purchase at selling selling price. price. C. the reporting reporting of yearend yearend inventory inventory at retail retail in the the financial financial statements statements.. D. the recording recording of mar4ups mar4ups at retail retail and mar4do'ns mar4do'ns at cost. cost. 5. !o determine determine an inventory inventory valuati valuation on that using using the retail retail method method under under the average average method" the computation of the cost c ost to retail percentage should A. include include mar4ups mar4ups but but not mar4do' mar4do'ns ns B. include include mar4u mar4ups ps and and mar4do' mar4do'ns ns C. include include mar4d mar4do'n o'nss but not mar4 mar4ups ups D. e#clude e#clude mar4 mar4ups ups and and mar4do' mar4do'ns ns 6. !he gross gross profit profit method method of estimating estimating ending ending inventory inventory may may be used for for all of the the follo'ing" e#cept A. Internal Internal as 'ell 'ell as e#ternal e#ternal interim interim report reportss B. Internal Internal as 'ell as as e#ternal e#ternal yearend yearend reports reports C. 7stimate 7stimate of inventory inventory destr destroyed oyed by fire fire or other casual casualty ty D. 8ough test test of validity validity of an inventory inventory cost determin determined ed under the periodic periodic or perpetual system 9. !he use use of the the gross gross prof profit it meth method od assume assumess A. the amount amount of gross gross profit profit is the same same as in prior prior years years B. sales and and cost of goods goods sold sold have not changed changed from previou previouss years C. inventory inventory values values have not increased increased from from previous previous years D. the relationshi relationship p bet'een selling selling price and cost of goods sold sold is similar similar to prior years. 1:. ,hich of the follo'ing is is not a basic assumption assumption of the gross profit profit methodA. !he beginning beginning inventory inventory plus the purchase purchase e$ual the total goods goods available available for sale. B. ;oods ;oods not not sold sold must must be on hand. hand. C. If the sales" sales" reduced reduced to the cost basis" basis" are deducted deducted from the sum of the the operating operating inventory plus purchases" the result is the amount of inventory on hand. D. !he total amount amount of purchase purchase and the total total amount of sales sales remain remain relatively relatively unchanged from the comparable previous period. 11. ,hich of the follo'ing represents represents the best
PA1- INVENTORIES
A. It is easier to 4eep trac4 of mar4et value that it is to 4eep trac4 of cost as mar4et value is available from any supplier. B. Cost loses its relevance for the determination of cost of goods sold if the cost of inventory has been incurred in an earlier accounting period. C. !he balance sheet valuation of inventory is most important consideration in the preparation of financial statements. D. !he practice of 'riting inventories belo' cost to net reali3able value is consistent 'ith the vie' that assets should not be carried in e#cess of amount e#pected to be reali3able from their sale or value. 1. =et reali3able value of inventories may fall belo' cost for a number of reasons including I. >roduct obsolescence. II. >hysical deterioration of inventories. III. An increase in the e#pected replacement costs of the inventory. I?. An increase in the estimated costs of completion" A. I" II and I? only C. I" III and I? only B. II" III and I? only D. I and II only. 1&. @o'er of cost or net reali3able value A. is most conservative if applied to the total inventory B. is most conservative if applied to ma
PA1- INVENTORIES
12. ,hich of the follo'ing is not dealt 'ith by >A* +1 (Agriculture)A. !he accounting for biological assets B. !he initial measurement of agricultural produce harvested from the entitys biological assets C. !he processing of agricultural produce after harvesting D. !he accounting treatment of government grants received in respect of biological assets 15. ,here is a long aging or maturation process after harvest" the accounting for such products should be dealt 'ith by A. >A* +1 B. >A* " Inventories C. >A* 12" Property, Plant, and Equipment D. >A* +:" Investment Property 16. A biological asset is A. @iving animal only B. @iving plant only C. Both a living animal and living plant D. =one#isting thing 19. !he follo'ing are biological assets" e#cept A. Dairy cattle C. Bushes B. Cotton D. %ruit !rees :. It is the management by an entity of the biological transformation of living animals or plant for sale into agricultural produce or into additional biological assets A. Agricultural activity C. 7conomic activity B. Biological activity D. Development activity 1. !he follo'ing are agricultural produce harvested from biological assets" e#cept A. ;rapes C. ,ool B. Cotton D. @umber . ;enerally spea4ing" biological assets relating to agricultural activity should be measured using A. Historical cost B. Historical cost less depreciation less impairment C. A fair value approach D. =et reali3able value &. ,hich of the follo'ing values is unli4ely to be used in fair value measurementA. uoted mar4et price in a mar4et B. !he most recent mar4et transaction price
PA1- INVENTORIES
C. !he present value of the e#pected net cash flo's from the assets D. 7#ternal independent valuation +. Biological assets during the period of gro'th" degeneration" production and procreation are measured initial recognition and every balance sheet at A. cost B. replacement cost C. fair value D. fair value less estimated point of sales 0. ,hich of follo'ing costs are not included in pointofsale costsA. Commissions to bro4ers and dealers B. @evies by regulatory agencies C. !ransfer ta#es and duties D. !ransport and other costs necessary to get the assets to a mar4et 2. A gain or loss arising on the initial recognition of a biological asset and from a change in the fair value less estimated point of sale costs of biological asset should be included in A. the net profit or loss for the period B. the statement of recogni3ed gains and losses C. a separate revaluation reserve D. a capital reserve 'ithin e$uity 5. Inventories comprising agricultural produce that an entity has harvested from its biological assets are measured on initial recognition at A. %air value B. =et reali3able value C. %air value less estimated pointofsale costs at the point of harvest D. Cost 6. Changes in fair value of a biological assets or an agricultural produce are A. Ignored B. Included in the determination of income of the current period C. Included in e$uity D. Included in retained earnings 9. An unconditional government grant related to a biological asset that has been measured at fair value less pointofsale costs should be recogni3ed as A. income 'hen the grant becomes receivable B. a deferred credit 'hen the grant becomes receivable C. income 'hen the grant application has been submitted D. deferred credit 'hen the grant has been approved &:. ,hich of the follo'ing information should be disclosed under >A* +1-
PA1- INVENTORIES
A. *eparate disclosure of the gain or loss relating to biological assets and agricultural produce. B. !he aggregate gain or loss arising on the initial recognition of biological assets and agricultural produce and the change in fair value less estimated pointofsale costs of biological assets. C. !he total gain or loss from biological assets" agricultural produce" and from changes in fair value less estimated pointofsale costs of biological assets. D. !here is no re$uirement in the *tandard to disclose separately any gains or losses &1. ,hen there is a production cycle of more than one year" >A* +1 encourages separate of the A. >hysical change only B. >rice change only C. !otal change in value D. >hysical change and price change
STRAIGHT PROBLEMS PROBLEM 1 Cyril Company included the follo'ing items under inven tories aterials Advance for materials ordered ;oods in process /ne#pired insurance on inventories Advertising catalogs and shipping bo#es %inished goods in factory %inished goods in companyo'ned retail stores" including0: profit on cost %inished goods in hands of consignees including +: profit on sales %inished goods in transit to customers" shipped %B destination" at cost %inished goods out on approval" at cost /nsalable finished goods" at cost ffice supplies aterials in transit shipped %B shipping point" e#cluding freight of >&:"::: ;oods held on consignment" at sales price" cost >10:":::
>1"+::"::: ::"::: 20:"::: 2:"::: 10:"::: ":::"::: 50:"::: +::"::: 0:"::: 1::"::: 0:"::: +:"::: &&:"::: ::":::
PA1- INVENTORIES
Required: Compute the amount to be presented as EInventoriesF under current assets. Ans. P5,500,000.00 PROBLEM 2 In your audit of Gose liva Company" you find that a ph ysical inventory on Dec. &1" :1+" sho'ed merchandise 'ith a cost of >++1"::: 'as on hand at that date. ou also discover the follo'ing items 'ere all e#cluded from the >++1":::. 1. erchandise of >21"::: 'hich is held by liva on consignment. !he consignor is the a# *u3u4i Company. . erchandise costing >&6"::: 'hich 'as shipped by liva %..B. destination to a customer on Dec. &1" :1+. !he customer 'as e#pected to receive the merchandise on Gan. 2" :10. &. erchandise costing >+2"::: 'hich 'as shipped by liva %..B. shipping point to a customer on Dec. 9" :1+. !he customer 'as scheduled to receive the merchandise on Gan. " :10. +. erchandise costing >6&"::: shipped by a vendor %..B. destination on Dec. &:" :1+" and received by liva on Gan. +" :10. 0. erchandise costing >01"::: shipped by a vendor %..B. shipping point on Dec. &1" :1+" and received by liva on Gan. 0" :10.
Required: Based on the above information" calculate the amount that should appear on livas statement of financial position at Dec. &1" :1+" for inventory. Ans. P530,000.00 PROBLEM 3 Craig Company as4s you to revie' its Dec. &1" :1+" inventory values and prepare the necessary ad&+"69: of inventory on hand at Dec. &1" :1+. . =ot included in the physical count of inventory is >1&"+: of merchandise purchased on Dec. 10 from Bro'ser. !his merchandise 'as shipped %..B. shipping point on Dec. 9 and arrived in Ganuary. !he invoice arrived and 'as recorded on D ec. &:. &. Included in inventory is merchandise sold to Champy on Dec. &:" %..B. destination. !his merchandise 'as shipped after it 'as counted. !he invoice 'as prepared and recorded as a sale on account for >1"6:: on Dec. &1. !he merchandise cost >5"&0:" and Champy received it on Ganuary. +. Included in inventory 'as merchandise received from Dudley on Dec. &1 'ith an invoice price of >10"2&:. !he merchandise 'as shipped %..B. destination. !he invoice" 'hich has not yet arrived" has not been recorded.
PA1- INVENTORIES
0. =ot included in inventory is >6"0+: of merchandise purchased from ;lo'ser Industries. !his merchandise 'as received on Dec. &1 after the inventory had been counted. !he invoice 'as received and recorded on Dec. &: 2. Included ni inventory 'as >1:"+&6 of inventory held by Craig on consignment from Gac4el Industries. 5. Include in inventory is merchandise sold to emp %..B. shipping point. !his merchandise 'as shipped after it 'as counted. !he invoice 'as prepared and recorded as a sale for >16"9:: on Dec. &1. !he cost of this merchandise 'as >1:"0:" and emp received the merchandise on Gan. 0. 6. 7#cluded from inventory 'as a carton labelled E>lease accept for credit.F!his carton contains merchandise costing >1"0:: 'hich had been sold to a customer for >"2::. =o entry had been made to the boo4s to reflect the return" but none of the returned merchandise seemed damaged. Required: a) Determine the proper inventory balance for Craig Company at Dec. &1" :1+. Ans. P23,3!2 b) >repared any correcting entries to ad
*ales revenues *ales returns and allo'ances =et sales Beginning inventory
:1& >9:"::: 11"::: :":::
:1+ >1&"::: &+5"::: &":::
:10 >+1:"::: -
PA1- INVENTORIES
7nding Inventory >urchases >urchase returns and allo'ances %reightin Cost of goods sold ;ross profit on sales
0"::: 6"::: &&"::: +2":::
2:"::: 6"::: 9"::: 91":::
96"::: 1:"::: 1"::: 9&"::: 95":::
*ales revenues *ales returns and allo'ances =et sales Beginning inventory 7nding Inventory >urchases >urchase returns and allo'ances %reightin Cost of goods sold ;ross profit on sales
:1& >9:"::: 11"::: 59"::: :"::: &"::: +"::: 0"::: 6"::: &&"::: +2":::
:1+ >&2:"::: 1&"::: &+5"::: &"::: &5"::: 2:"::: 6"::: 9"::: 02"::: 91":::
:10 >+1:"::: :"::: &9:"::: &5"::: ++"::: 96"::: 1:"::: 1"::: 9&"::: 95":::
Ans.
PROBLEM 5 *ome of the transactions of !orres Company during August are listed belo'. !orres uses the periodic inventory method. August 1: >urchased merchandise" >1":::" terms J1:" nJ&:. 1& 8eturned part of the purchase of August 1:" >1"::" and received credit on account" 10 >urchased merchandise on account" >12":::" terms 1J1:" nJ2:. 0 >urchased merchandise on account" >:":::" terms J1:" nJ&:. 6 >aid invoice of August 10 in full.
Required: A. Assuming that purchases are recorded at gross amounts and that discounts are to be recorded 'hen ta4en. >repare general
A*P
P1,200 P%'s# R#$%ns
)*15
P%'s#
P1,200 P1/,000
PA1- INVENTORIES A*P
P1/,000
)*25
P%'s# A*P
P20,000 P20,000
)*2)
A*P
P1/,000 P1/,000
C's
B. Assuming that purchases are recorded at net amounts and that discounts lost are treated as financial e#penses 1. >repare general
)*13
P%'s# A*P
P11,/0 P11,/0
A*P
P1,1/ P%'s# R#$%ns
P1,1/
)*15
P%'s# A*P
P15,)+0 P15,)+0
)*25
P%'s# A*P
P1!,/00 P1!,/00
)*2)
A*P In$#%#s$ E#ns# C's
P15,)+0 1/0 P1/,000
. >repare the ad1"0:"::: Accounts payable at Dec. &1" :1+ 1"::":::
PA1- INVENTORIES
=et sales (sales less sales returns)
6"10:":::
Additional information is as follo's 1. Included in the physical count 'ere tools billed to a customer f.o.b. shipping point on Dec. &1" :1+. !hese tools had a cost of >&1"::: and 'ere billed at >+:":::. !he shipment 'as on Dimitris loading doc4 'aiting to be pic4ed up by the common carrier. . ;oods 'ere in transit from a vendor to Dimitri on Dec. &1" :1+. !he invoice cost 'as >52":::" and the goods 'ere shipped f.o.b. shipping point on Dec. 9" :1+. &. ,or4s in process inventory costing >&:"::: 'as sent to an outside processor for plating on Dec. &:" :1+ +. !ools returned by customers and held pending inspection in the returned goods area on Dec. &1" :1+" 'ere not included in the physical count. n Gan. 6" :10" the tools costing >&"::: 'ere inspected and returned to inventory. Credit memos totalling >+5"::: 'ere issued to the customers on the same date. 0. !ools shipped to a customer f.o.b. destination on Dec. 2" :1+" 'ere in transit at Dec. &1" :1+" and had a cost of >2":::. /pon notification of receipt by the customer on Gan. " :10" Dimitri issued a sales invoice for >+": ::. 2. ;oods" 'ith an invoice of >5":::" received from a vendor at 0:: p.m. on Dec. &1" :1+" 'ere recorded on receiving report dated Gan. " :10. !he goods 'ere not included in the physical count" but the invoice 'as included in accounts payable at Dec. &1" :1+. 5. ;oods received from a vendor on Dec. 2" :1+" 'ere included in the physical count. Ho'ever" the related >02"::: vendor invoice 'as not included in accounts payable at Dec. &1" :1+" because the accounts payable copy of the receiving report 'as lost. 6. n Gan. &" :10" a monthly freight bill in the amount of >6"::: 'as received. !he bill specifically related to merchandise purchased in Dec. :1+" onehalf of 'hich 'as still in the inventory at Dec. &1" :1+. !he freight charges 'ere not included either the inventory or in accounts payable at Dec. &1" :1+. Required: A. Adayable balance C. Ad
Ans. P1,/)+,000 Ans. P1,3+0,000 Ans. P),103,000
PROBLEM 7hlo Company is a multiproduct firm. >resented belo' is information concerning products" the Ha'4eye. Date !ransaction uantity 1J1 Beginning Inventory 1"::: J+ >urchase "::: J: *ale "0:: +J >urchase &"::: 11J+ *ale "::
one of its >riceJCost >1 16 &: & &&
PA1- INVENTORIES
Required: Compute cost of goods sold" assuming 7hlo uses a) >eriodic system" %I% cost flo'. b) >erpetual system" %I% cost flo'. c) >eriodic system" 'eightedaverage cost flo'. d) >erpetual system" movingaverage cost flo'.
Ans. Ans. Ans. Ans.
P),100 P),100 P!1,/50 P)),+00
PROBLEM ) n ct. 1" :1+" Anta# 7lectronics Inc. entered into a 2month" >0:"::: ppurchase commitment for a supply of product A. n Dec. &1" :1+" the mar4et value of this material had fallen to >+:":::.
Required: a4e the +::"::: Ans. P%'s# P+00,000 L"ss "n P%'s# C"$#n$ 20,000 P%"4s"n 100,000 C's P520,000
b. >+0:"::: Ans. P%'s# L"ss "n P%'s# C"$#n$ C's G'n
P+50,000 100,000 P520,000 30,000
c. >00:"::: Ans. P%'s# L"ss "n P%'s# C"$#n$ C's G'n
P520,000 100,000 P520,000 100,000
PA1- INVENTORIES PROBLEM ! ichael Bolton Company follo's the practice of pricing its inventory at the lo'er of cost or net reali3able value" on an individual item basis.:
Item =o.
uantity
1&: 1&&& 1+2 1+&5 101: 10 105& 122
1":: 9:: 6:: 1"::: 5:: 0:: &"::: 1":::
Cost per /nit >&.: .5: +.0: &.2: .0 &.:: 1.6: +.5:
Cost to 8eplace >&.:: .&: &.5: &.1: .:: .5: 1.2: 0.:
7stimated Cost of Completion *elling >rice and Disposal >+.0: >:.&0 &.0: :.0: 0.:: :.+: &.: :.0 &.0 :.6: &.6: :.+: .0: :.50 2.:: :.0:
=ormal >rofit >1.0 :.0: 1.:: :.9: :.2: :.0: :.0: 1.::
Required: %rom the information above" determine the amount of Bolton Company inventory. Ans. P25,)+5 PROBLEM 10 Alcala Company installs replacement siding" 'indo's" and louvered glass doors for family homes. At December &1" :1+" the balance of inventory account 'as >0:":::" and the allo'ance for inventory 'rite do'n 'as >&&":::. !he inventory cost and other data on Dec. &1" :1+" are as follo's (amounts in thousands)
Item A B C D !otal
Cost > 69 9+ 10 19+ > 0:
8eplacement Cost > 62 9 1&0 11+ > +5
*ales >rice > 91 9& 19 :0 > 016
=8? > 65 60 111 195 > +6:
=ormal >rofit > 0 5 1: : > &
Required: !he gain on reversal of inventory 'ritedo'n is Ans. P),000 PROBLEM 11 >hil Collins 8ealty Corporation purchase a tract of unimproved land for >00":::. !his land 'as improved and subdivided into building lots at an additional cost of >&+"+2:. !hese building lots 'ere all of the same si3e but o'ing to differences in location 'ere offered for sale at different prices as follo's.
;roup 1
=o. of @ots 9 10
>rice per @ot >&"::: +":::
PA1- INVENTORIES
&
15
"+::
perating e#penses for the year allocated to this pro16"::. @ots unsold at the year end 'ere as follo's ;roup 1 ;roup ;roup &
0 lots 5 lots lots
Required: At the end of the fiscal year >hil Collins 8ealty Corporation instruct you to arrive at the net income reali3ed on the operation to date. Ans.
*ales C* p7# NET INCOME
> 6:"::: ( 02":::) ( 16"::) P 5,)00
PROBLEM 12 During :1+" >retenders %urniture Company purchases a carload of 'ic4er chairs. !he manufacturer sells the chairs to >retenders for a lump sum of > 09"60: because of it is discontinuing manufacturing operations and 'ishes to dispose of its entire stoc4. !hree types of chairs are included in the carload. !he three types and the estimated selling price for each are listed belo'.
!ype @ounge Chairs Armchairs *traight chairs
=o. of Chairs +:: &:: 5::
7stimated *elling >rice 7ach >9: 6: 0:
During :1+" >retenders sells :: lounge chairs" 1:: armchairs" and 1: straight chairs. Required: ,hat is the amount of gross profit reali3ed during :1+- Ans. P11,)+0 ,hat is the amount of inventory of unsold straight chairs on Dec. &1" :1+-
Ans. P 1),50
PROBLEM 13 ar4 >rice Company uses the gross profit method to estimate inventory for monthly reporting purposes. >resented belo' is information for the month of ay. Inventory" ay 1 > 12:"::: >urchases (gross) 2+:"::: %reightin &:":::
PA1- INVENTORIES
*ales revenue *ales returns >urchase discounts
1":::"::: 5:"::: 1":::
Required: a) Compute the estimated inventory at ay &1" assuming that the gross profit is &: of sales. Ans. P1/,000 6 Compute the estimated inventory at ay &1" assuming that the gross profit is &: of cost. Ans. P102,/15
PROBLEM 1+ !im @egler re$uires an estimate of the cost of goods sold lost by fire on arch 9. erchandise on hand Gan.1 'as >&6":::. >urchases since Gan.1 'ere >5"::: freightin" >&"+:: purchase returns and allo'ances" >"+::. *ales are made at && 1J& above cost and totalled >1::"::: to arch 9. ;oods costing >1:"9:: 'ere left undamaged by the fire remaining goods 'ere destroyed.
Required: (a) Compute the cost of goods destroyed. Ans. P25,100 (b) Compute the cost of goods destroyed" assuming that the gross profit is && 1J& of sales. Ans. P33,+33 PROBLEM 15 7astman Company lost most of its inventory in a fire in December
Inventory (beginning) >urchases >urchase returns
> 6:"::: 9:"::: 6":::
*ales revenue *ales returns ;ross profit based on net selling price
> +10"::: 1"::: &0
erchandise 'ith a selling price of >&:"::: remained undamaged after the fire" and damaged merchandise has a net reali3able value of >6"10:. !he company does not carry fire insurance on its inventory. Required: Ho' much is the fire loss incurred- Ans. P5),250 PROBLEM 1/
PA1- INVENTORIES
>ugo uses the retail inventory method. !he follo'ing information is available for the current year
Beginning inventory >urchases %reight >urchase returns >urchase allo'ances Department transfer in =et mar4ups =et mar4do'ns *ales *ales returns *ales discounts 7mployee discount @oss from brea4age
Cost > 1"&::"::: 16":::"::: +::"::: 2::"::: &::"::: +::":::
8etail > "2::"::: 9"::"::: 1":::"::: 2::"::: 2::"::: ":::"::: +"5::"::: &0:"::: ::"::: 2::"::: 0:":::
Required: Compute the estimated cost of inventory at the end of the currentyear using 1. Conventional (lo'er of cost or mar4et) retail inventory . Average retail inventory method Ans. En7n8 In4#n$"%& - P3,2009 COGS – P1/,000 &. %I% retail inventory method Ans. En7n8 In4#n$"%& - P3,2509 COGS – P15,!50 PROBLEM 1 An entity on adoption of IA* +1 has reclassified certain assets as biological assets. !he total value of the groups forest assets is > ":::"::: comprising %reestanding trees > 1"5::"::: @and under trees ::"::: 8oads in forests 1::"::: > ":::":::
Required: Ho' much should be reported as biological assets-
Ans. P 1,00,000
PROBLEM 1) Belo' are list of assets from the records of AAA Co. *heep > 1:"::: >igs ,ool 1&:"::: Carcass arn" carpet +0"::: *ausages" cured hams !rees in plantation forest 1"520"::: Bushes
>
1"220"::: &0"::: 10"::: +0":::
PA1- INVENTORIES
@ogs @umber >lants Cotton Harvested cane !hread" clothing *ugar Dairy cattle il4 Cheese
&02"::: 56:"::: 69:"::: 00"::: 1"::: 1:"::: +0"::: 1:"::: +0"::: &0":::
@eaf !ea" cured tobacco ?ines ;rapes ,ine %ruit trees >ic4ed fruit Diseased pigs >rocessed fruit ,ooden barrels
90"::: 5:"::: 1:0"::: 10"::: 59:"::: 6::"::: 5"::: +0"::: 6:"::: 50":::
Required: 1. Ho' much 'ould be classified as Biological Assets in the *tatement of %inancial Ans. P 5,510,000 >osition of AAA Co.. Ho' much 'ould be classified under the agricultural produceAns. P )5!,000 Ans. P 2,22/,000 &. Ho' much 'ould be given accounting treatment under >A* PROBLEM 1! An entity has these balances in its financial records
?alue of biological assets at cost 1J&1J1& %air value surplus on initial recognition at fair value 1J&1J1& Change in fair value to 1J&1J1+ due to gro'th and price fluctuations Decrease in fair value due to harvest
> 2::"::: 5::"::: 1::"::: 9:":::
Required: 1. Compute the carrying amount of Biological Assets to be reported in the Companys Ans. P 1,310,000 statement of financial position. . Ho' much should be reported in the current year income statementAns. P10,000 n#$ 8'n PROBLEM 20 DDD company is estimating the amount to 'hich its biological assets 'ith cost and mar4et price of >6&:":: and >9+:"::" respectively" 'ill be reported in the *tatement of %inancial >osition. ou 'ere given the follo'ing information =ecessary costs of getting such biological assets to the mar4et > &0"::: Commissions to bro4ers 1"::: @evies by the local government relating to the sale &:"::: !ransfer ta#es 1":::
PA1- INVENTORIES
Required: Ho' much is the estimated cost to sell-
Ans.
P 5+,000
PROBLEM 21 A public limited company" Dairy" produces mil4 on its farms. It produces &: of the countrys mil4 that is consumed. Dairy o'ns +0: farms and has a stoc4 of 1:"::: co's and 1:0"::: heifers. !he farms produce 6 million 4ilograms of mil4 a year and the average inventory held is 10:"::: 4ilograms of mil4. Ho'ever" the company is currently holding stoc4s of 0::"::: 4ilograms of mil4 in po'der form. At December &1" :1+" the herds are
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1:"::: co's (& years old)" all purchased on or before Gan. 1" :1& 50"::: heifers" average age 1.0 years" purchased on Guly 1" :1+ &:"::: heifers" average age years" purchased on Gan. 1" :1&
=o animals 'ere born or sold in the year. !he unit values less estimated cost to sell 'ere 1yearold animal at Dec. &1" :1+ yearold animal at Dec. &1" :1+ 1.0yearold animal at Dec. &1" :1+ &yearold animal at Dec. &1" :1+ 1yearold animal at Gan. 1" :1& and Guly 1" :1+ yearold animal at Gan. 1" :1&
>& +0 &2 0: &: +:
!he company has had problems during the year Contaminated mil4 'as sold to customers. As a result" mil4 consumption has gone do'n. !he go vernment has decided to compensate farmers for potential loss in revenue from the sale of mil4. !his fact 'as published in the national press on =ov.1" :1+. Dairy received an official letter on =ov.1:" :1+" stating that >0 'ould be paid to it on arch " :10. !he companys business is spread over different parts of the country. !he only region affected b y the contamination 'as Borth'ic4" 'here the govern ment curtailed the mil4 production in the region. !he future discounted cash flo' income from the cattle in the Borth'ic4 region amounted to >+" after ta4ing into account the government restriction order. !he company feels that it cannot measure the fair value of the co's in the region because of the problems created by the contamination. !here are 2:"::: co's and :"::: heifers in the region. All these animals had been purchased on Gan. 1" :1&. A rival company had offered Dairy >& for these animals after estimated costs to sell and further offered >2 for the farms themselves in that region. Dairy has no intention of selling the farms at present. !he company has been applying IA* +1 since Gan. 1" :1&.
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Required: 1. Ho' much is the carrying amount of biological assets (e#cluding Borth'ic4 8egion) as Ans. P/,300,000 of Gan. 1" :1&. Ho' much is the increase in value of biological assets (e#cluding Borth'ic4 8egion) in :1+ due to price changeAns. P !20,000 &. Ho' much is the increase in value of biological assets (e#cluding Borth'ic4 8egion) in Ans. P )00,000 :1+ due to physical change+. Ho' much is carrying amount of biological assets (e#cluding Borth'ic4 8egion) as of Dec. &1" :1+Ans.P,!50,000 Ans. P +,000,000 0. !he cattle in Borth'ic4 8egion should be valued at MULTIPLE CHOICE QUESTIONS 1. !he follo'ing information applied to %enn" Inc. for :1+ erchandise purchased for resale >+::"::: %reightin 1:"::: %reightout 0"::: >urchase returns "::: %enns inventoriable cost 'as A. >+::"::: B. >+:+"::: C. >+:6"::: D. >+1&"::: . n Dec. 6" :1+. err anufacturing Co. purchased goods costing >0:":::. !he terms 'ere %B destination. *ome of the costs incurred in connection 'ith the sale and delivery of the goods 'ere as follo's >ac4ing for shipment >1"::: *hipping 1"0:: *pecial handling charges "::: !he goods 'ere received on Dec. &1" :1+. In errs Dec.&1" :1+ statement of financial position" 'hat amount of cost for these goods should be included in inventoryA. >0+"0:: B. >0&"0:: C. >0"::: D. >0:"::: &. n Gune 1" :1+" >itt Corp. sold merchandise 'ith a list price of >0"::: to Burr on account. >itt allo'ed trade discounts of &: and :. Credit terms 'ere J10" nJ+: and the sale 'as made %B shipping point. >itt prepaid >:: of delivery costs for Burr as an
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accommodation. n Gune 1" :1+" >itt received from Burr a remittance in full payment amounting to A. >"5++ B. >"9+: C. >"9++ D. >&"1+: +. !he follo'ing information 'as ta4en from Cody Co.s accounting records for the year ended Dec. &1" :1+ Decrease in ra' materials inventory > 10"::: Increase in finished goods inventory &0"::: 8a' material purchased +&:"::: Direct labor payroll ::"::: %actory overhead &::"::: %reightout +0"::: !here 'as no 'or4 in process inventory at the beginning or end of the year. Codys :1+ cost of goods is A. >690"::: B. >91:"::: C. >90:"::: D. >900"::: 0. !he follo'ing information pertained to A3ur Co. for the year >urchase >1:"6:: >urchase discounts 1:"6: %reight in 10"+: %reight out 0"1+: Beginning inventory &:"6+: 7nding inventory :"02: ,hat amount should A3ur report as cost of goods sold for the yearA. >1:"6:: B. >116": C. >1&"&2: D. >16"0:: 2. n Dec. 10" :1+" %lanagan purchased goods costing >1::":::. !he terms 'ere %B shipping point. Costs incurred by %lanagan in connection 'ith the purchase and delivery of the goods 'ere as follo's =ormal freight charges >&"::: Handling costs "::: Insurance on shipment 0:: Abnormal freight charges for e#press shipping 1"::
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!he goods 'ere received on Dec. 15" :1+. ,hat is the amount that %lanagan should charge to inventory and to current period e#pense Inventory Current period expense A. > &"::: >&"5:: B. >0"::: >1"5:: C. >0"0:: >1":: D. >2"5:: >: 5. During Ganuary :1+" etro Co." 'hich maintains a perpetual inventory system" recorded the ff. information pertaining to its inventory Units Unit cost Total cost Units on hand Balance on 1J1J1+ 1"::: >1 >1"::: 1"::: >urchased on 1J5J1+ 2:: & 1"6:: 1"2:: *old on 1J:J1+ 9:: 5:: >urchased on 1J0J1+ +:: 0 "::: 1"1:: /nder the movingaverage method" 'hat amount should etro report as inventories at Ganuary &1" :1+A. >"2+: B. >&"0 C. >&"&:: D. >&"9:: /se the ff. information for the ne#t t'o $uestions. iller Inc. is a 'holesaler of office supplies" !he activity for odel III calculator during August is sho'n belo' Date BalanceJ!ransaction /nits Cost Aug.1 Inventory "::: >&2.:: 5 >urchase &"::: &5.: 1 *ales &"2:: 1 >urchase +"6:: &6.:: *ales &"6:: 9 >urchase 1"2:: &6.2: 6. If iller Inc. uses a %I% perpetual inventory system" the ending inventory odel III calculators at August &1 is reported as A. >10"66 B. >10"92: C. >10:":6: D. >10:"12: 9. If iller Inc. uses a 'eighted average cost periodic inventory system" the ending inventory of odel III calculators at Aug. &1 is reported as A. >10:":6:
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B. >10"92: C. >10:"12: D. >1+2"+:: 1:. Based on a physical inventory ta4en on Dec.&1" :1+" Che'y Co. determined its chocolate inventory on a %I% basis at >2"::: 'ith a replacement cost of >:":::. Che'y estimated that" after further processing costs of >1":::" the chocolate could be sold as finished candy bars for >+:":::. Che'ys normal profit margin is 1: of sales. /nder the lo'er of cost or net reali3able value rule" 'hat amount should Che'y report as chocolate inventory in its Dec. &1":1+ statement of financial positionA. >6"::: B. >2"::: C. >+"::: D. >:"::: 11. n Gan.1" :1+" Card Corp" signed a threeyear noncancellable purchase contract" 'hich allo's Card to purchase up to 0::"::: units of a computer part annually from Hart *upply Co. at >.1: per unit and guarantees a minimum annual purchase of 1::"::: units. During :1+" the part une#pectedly became obsolete. Card had 0:"::: units of his inventory at Dec. &1" :1+" and believes these parts can be sold as scrap for >.: per unit. ,hat amount of probable loss from the purchase commitment should Card report in :11 income statementA. >+"::: B. >:"::: C. >12"::: D. >6"::: 1. Dart Companys accounting records indicated the ff. information Inventory" 1J1J1+ > 0::"::: >urchases during :1+ "0::"::: *ales during :1+ &"::"::: A physical inventory ta4en on Dec.&1" :1+" resulted in an ending inventory of >050":::. Darts gross profit rate on sales has remained constant at 0 in recent years. Darts suspects some inventory may have been ta4en by a ne' employee. A! Dec. &1" :1+" 'hat is the estimated cost of missing inventoryA. >0"::: B. >1::"::: C. >150"::: D. >0":::
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1&. !he Bayambang Corp. 'as organi3ed on Gan.1" :1&. n Dec. &1" :1+" the corporation lost most of its inventory in a 'arehouse fire
Beginning Inventory" Gan. 1 >urchases >urchases returns and allo'ances *ales *ales returns and allo'ances
:1& > : +"&::"::: &:"2::
:1+ >1"::"::: &"+2:"::: &&":::
&"9+:"::: 6:":::
+"16:"::: 1::":::
n Gan. 1" :1+" the Corporations pricing policy 'as changed so that the gross profit rate 'ould be three percent points higher than the earned in :1&. *alvaged undamaged merchandise 'as mar4ed to sell at >1:"::: 'hile damaged merchandise 'as mar4ed to sell at >6:"::: had an estimated reali3able value of >16":::. Ho' much is the inventory loss due to fireA. >916":: B. >9+5"::: C. >602":: D. >6+"2:: 1+. n Dec. +" :1+" a fire destructed totally the ra' materials bodega of Bautista anufacturing Co. !here 'as no purchase of ra' materials from the time of the fire until Dec. &1" :1+.
8a' materials %actory supplies ;oods in process %inished goods
:1J:1J1+ > 9:"::: 2"::: 160"::: :":::
1J&1J1+ > 0"::: 1:"::: 0":::
!he accounting records sho' the ff. data *ales >urchases of ra' materials >urchases of factory supplies %reightin" ra' materials Direct labor
> 1"::"::: +::"::: &:"::: 10"::: :":::
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anufacturing overhead ;ross profit rate
50 of direct labor &0 of sales
!he cost of the ra' materials destroyed by the fire 'as A. >1+:"::: B. > 50"::: C. >6:"::: D. >152"::: 10. !he records of Binmaleys Dept. *tore report the ff. data for the month of Ganuary :1+ *ales *ales allo'ances *ales returns 7mployee discounts !heft and other losses Initial mar4up on purchases Addtional mar4up ar4 up cancellation ar4 do'n ar4 do'n cancellation %reight on purchases >urchase at cost >urchase returns at cost >urchase returns at sales price Beginning inventory at cost Beginning inventory at sales price
> 5"1::"::: 1::"::: 0::"::: ::"::: 1::"::: "9::"::: 0:"::: 1::"::: 2::"::: 1::"::: 1::"::: +"0::"::: +:"::: &0:"::: ++:"::: 6::":::
/sing the average retail inventory method" Binmaleys ending inventory is A. >&2:"::: B. >&6+"::: C. >+:"::: D. >++6"::: 12. @ondinium Corp." values its inventory by using the retail method (%I% basis" lo'er of cost or =8?). !he ff. information is available for the year
Beginning inventory >urchases %reightin Brea4age ar4ups (net) ar4do'ns (net) *ales
Cost > 6:"::: 95"::: +":::
8etail > 1+:"::: +:"::: 6"::: 1:"::: "::: +::":::
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At 'hat amount 'ould @ondinium report its ending inventoryA. >11"::: B. >11&"+:: C. >115"2:: D. >119"::: 15. Guly 1" :1+" Casa Development Co. purchased a tract of land for >1"::":::. Casa incurred additional cost of >&::"::: during the remainder of :1+ in prepairing the land for sale. !he tract 'as subdivided into residential lots as follo's @ot Class =umber of lots *ales price per lot A 1:: >+"::: B 1:: 12"::: C :: 1:"::: /sing the relative sales value method" 'hat a mount of costs should be allocated to the Class A lotsA. >&::"::: B. >&50"::: C. >2::"::: D. >5:"::: 16. Herc Co.s inventory at Dec. &1" :1+" 'as >1"0::"::: based on a physical count priced at cost" and before any necessary ad 9:":::" shipped %B shipping point from a vendor on • •
Dec. &:" :11" 'as received and recorded on Gan. 0" :10. ;oods in the shipping area 'ere e#cluded from the inventory although shipment
'as not made until Gan. +" :10. !he goods" billed to the customer %B shipping point on Dec. &:" :1+" had a cost of >1:":::. ,hat amount should Herc report as inventory in its Dec. &1" :1+ statement of financial positionA. >1"0::"::: B. >1"09:"::: C. >1"2:"::: D. >1"51:"::: K 19. e' Co.s accounts payable balance at Dec. &1 :1+" 'as >"::"::: before considering the ff. data ;oods shipped to e' %B shipping point on Dec. " :1+" 'ere lost in transit. •
•
!he invoice cost of >+:"::: 'as not recorded by e'. n Gan. 5" :10" e' filed a >+:"::: claims against the common carrier. n Dec. 5" :1+" a vendor authori3ed e' to return" for full credit" good shipped and billed at >5:"::: on Dec &" :1+. !he returned goods 'ere shipped
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•
by e' on Dec. 6" :1+. A >5:"::: credit memo 'as received and recorded by e' on Ganuary 0" :10. ;oods shipped to e' %B destination on Dec. :" :1+" 'ere received on Gan.
2" :10. !he invoice cost 'as > 0:":::. ,hat amount should e' report as accounts payable in its Dec. &1" :1+ statement of financial positionA. >"15:"::: B. >"16:"::: C. >"&:"::: D. >"6:"::: :. @e'is Companys usual sales terms are net si#ty days" %B shipping point. *ales" net of returns and allo'ances totalled >"&::"::: for the year ended Dec. &1" :1+" before yearend ad
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shipped and billed at >0:"::: on Dec. 10" :1+. !he returned goods 'ere received by @e'is on Gan. +" :10 and a >0:"::: credit memo 'as issued and recorded on the same date. ;oods 'ith an invoice amount of >6:"::: 'ere billed and recorded on Gan. &"
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:10. !he goods 'ere shipped on Dec. &:" :1+. ;oods 'ith an invoice amount of >1::"::: 'ere billed and recorded on Dec. &:"
:1+. !he goods 'ere shipped on Gan. &" :10. @e'is ad"&&:"::: B. >"6:"::: C. >"0:"::: D. >"&:"::: 1. n Gan. 1" :1+" Dell Inc. contracted 'ith the city of the @ittle to provide custom built des4s for the city schools. !he contract made Dell the citys sole supplier and re$uired Dell to supply no less than +"::: des4s and no more than 0"0:: des4s per year for t'o years. In turn" @ittle agreed to pay a fi#ed price of >11: per des4. During :1+" Dell produced 0"::: des4s for @ittle. At Dec. &:" :1+" 0:: of these des4s 'ere segregated from the regular inventory and 'ere accepted and a'aiting pic4up by @ittle. @ittle paid Dell >+0:"::: during :1+. ,hat amount should Dell recogni3e as contract revenue in :1+A. >+0:"::: B. >+90"::: C. >00:"::: D. >2:0":::
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. n ct. :" :1+" ;rimm Co. consigned forty freeaers to Holden Co. for sale at >1"::: each and paid >6:: in transportation costs. n Dec. &:" :1+" Holden reported the sale of ten free3ers and remitted >6"0::. !he remittance 'as net of the agreed 10 commission. ,hat amount should ;rimm recogni3e as consignment sales revenue for :1+A. >5"5:: B. >6"0:: C. >9"6:: D. >1:"::: &. !he ff. items 'ere included in pal Co.s inventory account at Dec. &1" :1+ erchandise out on consignment" at sales price" including +: mar4up on selling price >+:"::: ;oods purchased" in transit" shipped %B shipping point &2"::: ;oods held on consignment by pal 5"::: By 'hat amount should pals inventory account at Dec. &1" :1+" be reducedA. >1:&"::: B. > 25"::: C. > 01"::: D. > +&"::: +. n Dec. 1" :1+" Alt Department *tore received 0:0 s'eaters on consignment from !odd. !odds cost for the s'eaters 'as >6: each and they 'ere priced to sell at >1::. Alts commission on consigned goods is 1:. At Dec. &1" :1+" five s'eaters remained. In its Dec. &1" :1+ statement of financial position" 'hat amount should Alt report as payable for consigned goodsA. >+9"::: B. >+0"+:: C. >+0"::: D. >+:"+:: 0. During :1+" 8and Co. purchased >92:"::: of inventory. !he cost of goods sold for :1+ 'as >9::"::: and ending inventory at Dec. &1" :1+" 'as >16:":::. ,hat 'as the inventory turnover for :1+A. 2.+ B. 2.: C. 0.& D. 0.:
2. Brady Corporation values its inventory at the lo'er of cost or net reali3able value as re$uired by I%8*. Brady has the ff. information regarding its inventory
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Historical cost >1"::: 7stimated selling price 9:: 7stimated costs to complete and sell 0: 8eplacement cost 6:: ,hat is the amount for inventory that Brady should report on the statement of financial position under the lo'er of cost or net reali3able value methodA. >1"::: B. > 9:: C. > 60: D. > 50: 5. A company determined the ff. values for its inventory as of the end of its fiscal year Historical cost >1::"::: Current replacement cost 5:"::: =et reali3able value 9:"::: =et reali3able value less a normal profit 60"::: %air value 90"::: ,hat amount should the company report as inventory on its statement of financial positionA. >5:"::: B. >60"::: C. >9:"::: D. >90"::: /se the ff. information for the ne#t three $uestions. A public limited company" Crom'ell Dairy >roducts" produces mil4 on its farms. As of Gan. 1" :1+ Crom'ell has a stoc4 of 1":0: co's (average age" years old) and 10: heifers (average age" 1 year old). Crom'ell purchased &50 heifers" average age 1 year old" on Guly 1" :1+. =o animals 'ere born or sold in the year. !he unit values less estimated cost to sell 'ere 1yearold animal at Dec. &1" :1+ >&":: yearold animal at Dec. &1" :1+ +"0:: 1.0yearold animal at Dec. &1" :1+ &"2:: &yearold animal at Dec. &1" :1+ 0"::: 1yearold animal at Gan. 1" :1+ and Guly 1" :1+ &"::: yearold animal at Gan. 1" :1+ +":::
6. !he increase in value of biological assets in :1+ due to price changes is A. >1"0::":::
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B. > 2&:"::: C. > 000"::: D. > +2:"::: 9. !he increase in value of biological assets in :1+ due to physical changes is A. >65:"::: B. >5:"::: C. >09:"::: D. >56:"::: &:. !he carrying amount of the biological assets as of Dec. &1" :1+ is A. >5"&0"::: B. >5"50"::: C. >2"60"::: D. >2"10:":::
