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NICE CPA REVIEW

PRACTICAL ACCOUNTING 1 – REVIEW
INVENTORIES

PROF. U.C. VALLADOLID

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.

1. A retailer imported goods at a cost of P 260,000, including P 40,000 non-refundable import

duties and P 20,000 refundable purchase taxes. The risks and rewards of ownership of the time
imported goods were transferred to the retailer upon collection of the goods from the harbor
warehouse. The retailer was required to pay for the goods upon collection. The retailer incurred
P 10,000 to transport the goods to its retail outlet and a further P 4,000 in delivering the goods
to its customer. Further selling costs of P 6,000 were incurred in selling the goods.

What amount should the inventory be valued?

a. 240,000
b. 250,000
c. 260,000
d. 270,000

2. On December 28, year 2, Angel Manufacturing Co. purchased goods costing 50,000. The terms
were FOB destination. Some of the costs incurred in connection with the sale and delivery of the
goods were as follows:
Packaging for shipment 1,000 Shipping 1,500 Special handling charges 2,000. These goods
were received on December 31, year 2. In Angel’s December 31, year 2 balance sheet, what
amount of cost for these goods should be included in inventory?
a. 54,500
b. 53,500
c. 52,000
d. 50,000

3. In connection with your review of the Rosalina Manufacturing Company, you reviewed its
inventory as of December 31, 2022 and found the following items:

(a) A packing case containing a product costing100,000 was standing in the shipping room
when the physical inventory was taken. It was not included in the inventory because it was
marked “Hold for shipping instructions.” The customer’s order was dated December 18, but
the case was shipped and the customer billed on January 10, 2023.

(b) Merchandise costing 600,000 was received on December 28, 2022, and the invoice was
recorded. The invoice was in the hands of the purchasing agent; it was marked “On
consignment”.

(c) Merchandise received on January 6, 2023, costing 700,000 was entered in purchase
register on January 7. The invoice showed shipment was made FOB shipping point on
December 31, 2022. Because it was not on hand during the inventory count, it was not
included.

(d) A special machine costing 200,000, fabricated to order for a particular customer, was
finished in the shipping room on December 30. The customer was billed for 300,000 on that
date and the machine was excluded from inventory although it was shipped January 4,
2023.

(e) Merchandise costing 200,000 was received on January 6, 2023, and the related purchase
invoice was recorded January 5. The invoice showed the shipment was made on December
29, 2022, FOB destination.
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(f) Merchandise costing 150,000 was sold on an installment basis on December 15. The
customer took possession of the goods on that date. The merchandise was included in
inventory. Historical experience suggests that full payment on installment sale is received
approximately 99% of the time.

(g) Goods costing 500,000 were sold and delivered on December 20. The goods were included
in the inventory because the sale was accompanied by a purchase agreement requiring
Rosalina to buy back the inventory in February 2023.

Based on the above information, how much of these items should be included in the inventory
balance at December 31, 2022?
a. 1,300,000
b. 800,000
c. 1,650,000
d. 1,050,000

4. The following information was available from the inventory records of Tricia Company for
January:
Units Unit Cost Total Cost
Balance at January 1 3,000 9.77 29,310
Purchases:
January 6 2,000 10.30 20,600
January 26 2,700 10.71 28,917

Sales:
January 7 (2,500)
January 31 (3,200)
Balance at January 31 2,000

1. Assuming that Tricia does not maintain perpetual inventory records, what should be the
inventory at January 31, using the weighted-average inventory method, rounded to the
nearest peso?
a. 21,010.
b. 20,474.
c. 20,520.
d. 20,720.

2. Assuming that Tricia maintains perpetual inventory records, what should be the
inventory at January 31, using the moving-average inventory method, rounded to the
nearest peso?
a. 21,010.
b. 20,474.
c. 20,520.
d. 20,720.

5. The Starla Corporation applies the lower of cost or net realizable value (NRV) inventory. Data
regarding the items in work-in-process inventory are shown below:
Shorts Pants
Historical cost 56,640 90,000
Selling Price 108,800 108,000
Estimated cost to complete 14,400 20,400
Replacement Cost 50,400 95,400
Normal profit margin as percentage of selling price 25% 10%

Under the lower cost or NRV rule, the pants should be valued at?
a. 67,800
b. 90,000
c. 87,600
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d. 95,400

6. Jerome Company provided the following data for the current year:
Inventory – January
Cost 3,000,000
Net realizable value 2,800,000
Net purchases 8,000,000
Inventory – December 31;
Cost 4,000,000
Net realizable value 3,700,000
Under the LCM rule, what should be reported as cost of goods sold?
a. 7,000,000
b. 7,100,000
c. 7,300,000
d. 7,200,000

7. Joseph Factory started operations in 2021. Joseph manufactures bath towels. 60% of the
production are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for
P250 per dozen. During 2021, 6,000 dozens were produced at an average cost of P360 per
dozen. The inventory at the end of the year was as follows:

220 dozens “Class A” @ P360 P 79,200

300 dozens “Class B” @ P360 108,000
P187,200

Using the relative sales value method, which management considers as a more equitable basis
of cost distribution, answer the following:

1. How much of the total cost should be allocated to “Class A”?

a. 1,296,000
b. 1,620,000
c. 1,284,324
d. 925,714

2. How much of the total cost should be allocated to “Class B”?

a. 540,000
b. 875,676
c. 864,000
d. 1,234,286

3. How much is the value of inventory as of December 31, 2021?

a. 187,200
b. 187,946
c. 117,000
d. 166,500

4. How much is the cost of sales for the year 2021?

a. 1,972,800
b. 1,993,500
c. 2,043,000
d. 1,972,054

5. How much is the gross profit for the year 2021?

a. 242,200
b. 406,500
c. 221,500
d. 242,946
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8. On October 1, 2022, Kelly Company entered into a 6-month, 5,200,000 purchase commitment
for a supply of a special product on March 31, 2023, On December 31, 2022, the market value
of this material had fallen to 5,000,000. O March 31, 2023, the market value of the purchase
commitment is 4,900,000.

What is the loss on purchase commitment that should be recognized on March 31, 2023?
a. 200,000
b. 100,000
c. 300,000
d. 0

9. During the prior fiscal year, Kimberly Corp. signed a long-term non-cancellable purchase
commitment with its primary supplier to purchase 2.5 million of raw materials. Kimberly paid the
2.5 million to acquire the raw materials when the raw materials were only worth 2.2 million.
Assume that the purchase commitment was properly recorded. What is the journal entry to
record the purchase?
a.Debit Inventory for 2,200,000, and credit Cash for 2,200,000.
b.Debit Inventory for 2,200,000, debit Unrealized Holding Loss for 300,000, and credit Cash for
2,500,000.
c.Debit Inventory for 2,200,000, debit Purchase Commitment Liability for 300,000 and credit
Cash for 2,500,000.
d.Debit Inventory for 2,500,000, and credit Cash for 2,500,000.

10. Kris Company's accounting records indicated the following information:

Inventory, 1/1/2023 600,000
Purchases during 2023 3,000,000
Sales during 2023 3,800,000
A physical inventory taken on December 31, 2023, resulted in an ending inventory of 700,000.
Kris's gross profit on sales has remained constant at 35% in recent years. Kris suspects some
inventory may have been taken by a new employee. At December 31, 2023, what is the
estimated cost of missing inventory?
a. 430,000.
b. 150,000.
c. 200,000.
d. 250,000.

11. A fire destroyed JP Company's inventory on October 31. On January 1, the inventory had a cost
of 3,500,000. During the period January 32 to October 31, the entity had net purchases of
8,500,000 and net sales of 17,000,000. Undamaged inventory at the date of fire had a cost of
170,000. The mark up on cost is 66 2/3%. What was the cost of inventory destroyed by fire?
a. 1,630,000
b. 1,970,000
c. 1,550,000
d. 5,170,000

12. On August 31, 2023 a big flood caused a severe damage to the warehouse of Joseph
Company. The company suffered an enormous amount of loss on its merchandise inventory.
The following information was available from the accounting records of Joseph Company:

January 1, 2023 to
Date of flood 2022
Inventory beginning P 400, 000 none
Purchases 2, 380, 000 P 2, 240, 000
Purchase returns 60, 000 40, 000
Sales 3, 120, 000 2, 400, 000

At the beginning of 2023, the company changes its policy on selling prices of merchandise in
order to produce a gross profit rate 5% higher that the gross profit rate in 2022. Undamaged
merchandise marked to sell at 100,000 were salvaged. Damaged merchandise marked to sell
P30,000 had an estimated realizable value of P8,000.
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1. What is the estimated inventory cost lost from flood on August 31, 2023?
a. 436, 000
b. 458, 000
c. 506, 000
d. 536, 000

2. What is the gross profit for 2022?

a. 900,000
b. 800,000
c. 600,000
d. 500,000

13. You obtained the following information in connection with your audit of Jerome Corporation:
Cost Retail
Beginning inventory 1,987,200 2,760,000
Sales 7,812,000
Purchases 4,688,640 6,512,000
Freight in 94,560
Mark ups 720,000
Mark up cancellations 120,000
Markdown 240,000
Markdown cancellations 40,000
Jerome Corp. uses the retail inventory method in estimating the values of its inventories.

Based on the above and the result of your audit, answer the following:
1. The cost ratio to be used considering the provisions of PAS 2 is
a.68.58%
b.69.20%
c.70.00%
d.75.78%

2. The estimated ending inventory at retail is

a. 2,300,000
b. 2,060,000
c. 1,940,000
d. 1,860,000

3. The estimated ending inventory at cost is

a. 1,412,786
b. 1,275,588
c. 1,302,000
d. 1,287,120

4. The estimated cost of goods sold is

a. 5,468,400
b. 5,494,812
c. 5,357,614
d. 4,685,117

14. Joshtin Farms produces 45,000 kilos of tobacco during the 2022 season. Company sells all of
its tobacco to Philip which has agreed to purchase the entire production at the prevailing market
rate. Recent legislation assures market will not fall below 70 per kilo during the next 2 years.
During 2022, Joshtin delivered 30,000 kilos at market price of 70 to Philip and sold the
remaining 15,000 kilos in 2023 at the market price of 72.

What amount of revenue should Joshtin recognize in 2022?

a. 2,100,000
b. 2,160,000
c. 3,150,000
d. 3,240,000
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15. On January 1, year 2, Ozz, Inc. contracted with the city of Maya to provide custom built desks
for the city schools. The contract made Ozz the city’s sole supplier and required Ozz to supply
no less than 4,000 desks and no more than 5,500 desks per year for two years. In turn, Maya
agreed to pay a fixed price of 110 per desk. During year 2, Ozz produced 5,000 desks for Maya.
At December 31, year 2, 500 of these desks were segregated from the regular inventory and
were accepted and awaiting pickup by Maya. Maya paid Ozz 450,000 during year 2. What
amount should Ozz recognize as contract revenue in year 2?
a. 450,000
b. 495,000
c. 550,000
d. 605,000

16. A group of twenty 2-year old cattle was held at January 1, 2023. Five 2-year old cattle were
purchased on January 2, 2023 for 12,000 each and 5 calves were born on January 2, 2023. No
cows or calves were disposed of during the period. Per unit fair values less cost to sell were as
follows:

January 1, 2023
2-year old cattle 12,000
New born cattle 4,000
December 31, 2023
2-year old cattle 13,000
3-year old cattle 15,000
1-year old cattle 7,000
New born cattle 5,000

The Company records separately the increase in fair value less cost to sell due to physical
change and change in fair value less cost to sell due to price change.

1. How much shall be taken to income statement as a gain arising physical change?
a. 30,000
b. 60,000
c. 80,000
d. 110,000

2. How much shall be taken to income statement as a gain arising from change in fair value
due to price change?
a. 30,000
b. 60,000
c. 90,000
d. 110,000

17. The following audited balances pertain to Shawn Company

Accts. Payable:
Jan.1, 2023 286, 924
Dec.31, 2023 737, 824
Inventory balance:
Jan. 1, 2023 815, 386
Dec.31, 2023 488, 874
Cost of goods sold-2023 1, 859, 082

How much was paid by Shawn Company to its supplier in 2023?

a. 1, 081, 670
b. 1, 065, 900
c. 1, 071, 678
d. 1, 097, 000
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18. Steven Co. had the following amounts related to the sale of consignment inventory:

Cost of merchandise shipped to consignee 72,000

Sales value for two-thirds of inventory sold by consignee 80,000
Freight cost for merchandise shipped 7,500
Advertising paid for by consignee, to be reimbursed 4,500
10% commission due the consignee for the sale 8,000

What amount should Steven report as net profit (loss) from this transaction for the year?
a. (12,000)
b. 8,000
c. 14,500
d. 32,000

19. The following account balances are presented by Connie Company:

2022 2023
Merchandise Inventory 150,000 90,000
Cash 180,000 ?
Accounts Receivable 240,000 180,000
Accounts payable 405,000 200,000

Assuming all sales and purchases are on account. The amount of cost of goods sold is 360,000
during the current year. The gross profit margin on sales is 20%.

1. What is the 2023 cash balance?

a. 105,000
b. 35,000
c. 55,000
d. 185,000

2. What is the amount of purchases?

a. 300,000
b. 210,000
c. 240,000
d. 310,000

20. The closing inventory of Alfie Company amounted 284,000 at December 31, 2023. This total
includes two inventory lines about which the inventory taker is uncertain.

Item 1- 500 items which had cost P15 each and which were included at 7,500. These items
were found to have been defective at the balance sheet date. Remedial work after the balance
sheet date cost 1,800 and they were then sold for P20 each. Selling expenses were P400.

Item 2- 100 items that had cost P10 each but after the balance sheet date, these were sold for
P8 each with selling expenses of P150.

What figure should appear in Alfie’s statement of financial position for inventory?
a. 283,650
b. 284,000
c. 283,950
d. 284,300
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21. Kris manufacturers and sells paper envelopes. The stock of envelopes was included in the
closing inventory as of December 31, 2022, at a cost of 50 per pack. During the final audit, the
auditors noted that the subsequent sale price for the inventory at Juanuary15, 2023, was 40 per
pack. Furthermore, inquiry reveals that during the physical stock take, a water leakage has
created damages to the paper and the glue. Accordingly, in the following week, Kris has spent
a total of 15 per pack for repairing and reapplying glue to the envelopes. The net realizable
value and inventory write-down (loss) amount to
a. 40 and 10 respectively
b. 45 and 10 respectively
c. 25 and 25 respectively
d. 35 and 25 respectively

22. A recent fire severely damaged Allison Company’s administration building and destroyed many
of its financial records. You have been contracted by Allison’s management to reconstruct as
much financial information as possible for the month of July. You learn that Allison makes a
physical inventory count at the end of each month to determine monthly ending inventory
values. You also find out that the company applies the average cost method.

You are able to gather the following information by examining various documents:
Inventory, July 31 150,000 units
Total cost of goods available for
sale in July 356,400
Cost of goods sold during July 297,000
Gross profit on sales for July 303,000
Cost of inventory, July 1 0.35 per unit
The following are Allison’s July purchases of merchandise:
Date Quantity Unit Cost
July 6 180,000 P0.40
12 150,000 0.41
16 120,000 0.42
17 150,000 0.45

1. Number of units on hand July 1

a. 450,000 b. 848,571
c.169,714 d. 300,000

2. Units sold during July

a. 600,000 b. 300,000
c.750,000 d. 450,000

3. Unit cost of inventory at July 31

a. 0.35 b. 0.396
c. 0.419 d. 0.279

23. Matet Company accumulated the following data for the current year.
Raw materials – beginning inventory 90,000 units @ P7.00
Purchases 75,000 units @ P8.00
Purchases 120,000 units @ P8.50

The entity transferred 195,000 units of raw materials to work in process during the year.

Work in process – beginning inventory 50,000 units @ P14.00

Work in process – end 720,000
Direct labor 3,100,000
Manufacturing overhead 2,950,000

The entity used the FIFO method for valuing inventory.

1. What is the cost of raw materials used?

a. 1,485,000
b. 2,250,000
c. 1,530,000
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d. 3,015,000

2. What is the total manufacturing cost?

a. 8,300,000
b. 7,535,000
c. 7,580,000
d. 9,065,000

3. What is the cost of goods manufactured for the current year?

a. 7,535,000
b. 8,235,000
c. 7,515,000
d. 8,280,000

24. On January 1, year 2, Kristine Corp. signed a three-year non-cancelable purchase contract,
which allows Kristine to purchase up to 500,000 units of a computer part annually from Tris
Supply Co. at .10 per unit and guarantees a minimum annual purchase of 100,000 units. During
year 2, the part unexpectedly became obsolete. Kristine had 250,000 units of this inventory at
December 31, year 2, and believes these parts can be sold as scrap for .02 per unit. What
amount of probable loss from the purchase commitment should Kristine report in its year 2
income statement?
a. 24,000
b. 20,000
c. 16,000
d. 8,000

25. On June 1, 2023, Jeffrey Company sold merchandise with the list price of 8,000,000 to Antonio
Company on account. Jeffrey allowed trade discounts of 20% and 10%.

Credit terms were 2/10, n/30 and the sale was made FOB shipping point. Jeffrey prepaid 50,000
of delivery costs for Antonio as an accommodation.

1. What amount should be reported as sales revenue?

a. 5,760,000
b. 4,940,000
c. 5,648,000
d. 4,560,000

2. On June 11, 2023, what amount was received by Jeffrey from Antonio as remittance in full?
a. 5,644,000
b. 4,580,000
c. 5,694,900
d. 4,644,000