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Use The Following Information To Answer Items 3 and 4

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I.

FINANCIAL ACCOUNTING PROBLEMS

1. EE Company acquired trading equity instrument for P4,000,000 on April 30, 2018. The equity instrument is
classified as financial asset at fair value through profit or loss. The transaction cost incurred amounted to
P700,000. On December 31, 2018, the fair value of the instrument was P5,500,000. What amount of gain
should be recognized in the income statement for the year ended December 31, 2018?
A. 0 B. 700,000 C. 800,000 D. 1,500,000

2. EE Company acquired non-trading equity instrument for P4,000,000 on April 30, 2018. The equity
instrument is classified as financial asset at fair value through other comprehensive income. The transaction
cost incurred amounted to P700,000. On December 31, 2018, the fair value of the instrument was
P5,500,000. What amount of gain should be recognized in other comprehensive income for the year ended
December 31, 2018?
A. 0 B. 700,000 C. 800,000 D. 1,500,000

Use the following information to answer items 3 and 4:


During 2018, LL Company purchased trading securities with the following cost and market value on December 31,
2018:

Security Cost Market value


X – 1,000 shares 200,000 300,000
Y – 10,000 shares 1,700,000 1,600,000
Z – 20,000 shares 3,100,000 2,900,000
5,000,000 4,800,000

The company sold 10,000 shares of Security Y on January 15, 2019, for P150 per share.

3. What amount of unrealized gain or loss should be reported in the income statement for 2018?
A. 200,000 loss B. 200,000 gain C. 300,000 loss D. 300,000 gain

4. What amount should be reported as gain or loss on sale of trading securities in 2019?
A. 100,000 gain B. 100,000 loss C. 200,000 gain D. 200,000 loss

Use the following information to answer items 5 to 7:


On December 31, 2018, SS Company appropriately reported a P100,000 unrealized loss. There was no change during
2019 in the composition of the portfolio of non-trading equity securities held at fair value through other
comprehensive income.

Security Cost Market value


December 31, 2019
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000

5. What is the market value of the investment on December 31, 2018?


A. 3,500,000 B. 3,600,000 C. 3,700,000 D. 3,800,000

6. What amount of loss on these securities should be included in the statement of comprehensive income for
the year ended December 31, 2019 as component of other comprehensive income?
A. 0 B. 100,000 C. 300,000 D. 400,000

7. What cumulative amount of loss on these securities should be reported in the statement of changes in
equity for the year ended December 31, 2019 as component of other comprehensive income?
A. 0 B. 100,000 C. 200,000 D. 400,000

Use the following information for items 8 and 9:


On December 31, 2018, Black Order Company appropriately reported a P100,000 unrealized gain. There was no
change during 2019 in the composition of the portfolio of trading equity securities.
Security Cost Market value
December 31, 2019
A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
3,700,000 3,300,000

8. What is the market value of the investment on December 31, 2018?


A. 3,500,000 B. 3,600,000 C. 3,700,000 D. 3,800,000

9. What amount of gain or loss on these securities should be included in the statement of comprehensive
income for the year ended December 31, 2019?
A. 400,000 gain B. 400,000 loss C. 500,000 gain D. 500,000 loss

Use the following information to answer items 10 and 11:


On January 1, 2020, QQ Company purchased equity securities to be held at fair value through other comprehensive
income. On December 31, 2020, the cost and market value were:

Cost Market
Security A 2,000,000 2,400,000
Security B 3,000,000 3,500,000
Security C 5,000,000 4,900,000

On July 1, 2021, the company sold security A for P2,500,000.

10. What amount should be recognized directly in retained earnings as a result of the sale of financial asset in
2021?
A. 0 B. 100,000 C. 400,000 D. 500,000

11. What amount should be recycled to profit and loss as a result of the sale of financial asset in 2021?
A. 0 B. 100,000 C. 400,000 D. 500,000

12. On January 1, 2018, HH Company purchased 40,000 shares at P100 per share to be held for trading.
Brokerage fees amounted to P120,000. A P5 dividend per share had been declared on December 15, 2017,
to be paid on March 31, 2018 to shareholders of record on January 31, 2018. No other transactions
occurred in 2018 affecting the investment. What is the initial measurement of the investment?
A. 3,800,000 B. 3,920,000 C. 4,000,000 D. 4,120,000

13. BB Company purchased 10,000 shares representing passive ownership of DD Company on February 1,
2019. BB Company received a stock dividend of 2,000 shares on March 31, 2019, when the carrying amount
per share was P350 and the market value per share was P400. DD Company paid a cash dividend of P15
per share on September 15, 2019. In the income statement for the year ended December 31, 2019, what
amount should be reported as dividend income?
A. 150,000 B. 180,000 C. 880,000 D. 980,000

14. Hipolito Company owns 20,000 shares of Homer Company’s 200,000 shares of P100 par, 6% cumulative,
non-participating preference share capital and 10,000 shares representing 2% ownership of Homer’s
ordinary share capital. During 2018, Homer Company declared and paid preference dividends of P2,400,000.
No dividends had been declared or paid during 2017. In addition, Hipolito Company received a 5% share
dividend on ordinary share from Homer Company when the quoted market price of Homer’s ordinary share
was P10. What amount should be reported as dividend income for 2018?
A. 120,000 B. 125,000 C. 240,000 D. 245,000

Use the following information for items 15 and 16:


At the beginning of current year, Heather company acquired 200,000 ordinary shares of Gringo Company for
P9,000,000. At the time of purchase, Gringo Company had outstanding 800,000 ordinary shares with a carrying
amount of P36,000,000. The following events took place during the current year:
 Gringo Company reported profit of P1,800,000 for the current year.
 Heather Company received from Gringo Company a dividend of P0.75 per ordinary share.
 The market value of Gringo Company is P48.

Heather Company has elected irrevocably to measure the investment at fair value through other comprehensive
income.

15. Total income to be reported in the income statement for the current year is
A. 150,000 B. 300,000 C. 450,000 D. 750,000

16. What is the carrying amount of the investment at year-end?


A. 9,000,000 B. 9,300,000 C. 9,600,000 D. 9,900,000

Wesley Company provided the following data for 2017:


 On September 1, Wesley received a P500,000 cash dividend from Soba Company in which Wesley owns a
30% interest.
 On October 1, Wesley received 3,000 shares as bonus issue from Jack Company. The market value of the
shares is P20. Wesley owns a 5% interest in Jack.
 Wesley owns a 10% interest in Bunny Company, which declared a P2,000,000 cash dividend on November
15, 2017 payable on January 15, 2018.

17. What amount should be reported as dividend income for 2017?


A. 0 B. 200,000 C. 2,000,000 D. 2,560,000

Use the following information for items 18 to 21:


During 2012, Matang Company bought shares of Lawin Company as follows:

June 1 20,000 shares @ P100 2,000,000


December 1 30,000 shares @ P120 3,600,000
5,600,000

The following transactions occurred during 2013:


January 1 Received cash dividend at P10 per share.
January 20 Received 20% stock dividend.
December 10 Sold 30,000 shares at P125 per share

CASE 1: FIFO approach is used.


18. What is the gain on the sale of the shares?
A. 950,000 B. 1,150,000 C. 1,450,000 D. 1,650,000

19. What total income in connection with the above transactions shall be included in the income statement for
the year 2013?
A. 950,000 B. 1,150,000 C. 1,450,000 D. 1,650,000

CASE 2: Average approach is used.


20. What is the gain on the sale of the shares?
A. 950,000 B. 1,150,000 C. 1,450,000 D. 1,650,000

21. What total income in connection with the above transactions shall be included in the income statement for
the year 2013?
A. 950,000 B. 1,150,000 C. 1,450,000 D. 1,650,000

22. Bruce Company owned 50,000 ordinary shares of Banner Company. These 50,000 shares were purchased at
P120 per share. On August 30, 2001, Banner Company distributed 50,000 stock rights to Bruce Company.
Bruce Company was entitled to buy one new share of Banner Company for P90 cash and two of these
rights. On August 30, 2011, each share had a market value of P130 and each right had a market value of
P20. What total cost should be recorded for the new shares that are acquired by exercising the rights?
A. 2,250,000 B. 3,250,000 C. 3,050,000 D. 5,500,000
23. ABC Company issued rights to subscribe to its stock, the ownership of four shares entitling the shareholders
to subscribe for one share at P100. DEF Company owns 50,000 shares of ABC Company with total cost of
P5,000,000. The share is quoted right-on at P150. What is the cost of the new investment if all of the stock
rights are exercised by the investor?
A. 1,250,000 B. 1,450,000 C. 1,750,000 D. 1,762,500

Use the following information to answer items 24 and 25:


On January 1, 2018, Tony Company purchased 50,000 shares of XYZ Co. for P7,200,000. On October 1, 2018, the
company received 50,000 stock rights from the investee, each right entitled the shareholder to acquire one share for
P85. The market price of the investee’s share was P100 immediately before the rights were issued and P90
immediately after the rights were issued. On December 1, 2018, the company exercised all the stock rights. On
December 31, 2018, the entity sold 25,000 shares at P90 per share. The stock rights are not accounted for
separately.

24. If the FIFO approach is used, what amount of gain on sale of investment should be recognized in 2018?
A. 125,000 B. 287,500 C. 450,000 D. 700,000

25. If the average approach is used, what amount of gain on sale of investment should be recognized in 2018?
A. 125,000 B. 287,500 C. 450,000 D. 700,000

DEBT INVESTMENTS AT FVPL/FVOCI/AMORTIZED COST


26. On July 1, 2018, YTD Company purchased P1,000,000 face value 8% bonds for P910,000 plus accrued
interest to yield 10%. The bonds mature on January 1, 2023, pay interest annually on December 31, and
are classified as trading investment. On December 31, 2018, the bonds had a market value of P945,000. On
March 31, 2019, the company sold the bonds for P920,000 excluding accrued interest. On December 31,
2018, what amount should be reported for trading investment?
A. 910,000 B. 920,000 C. 945,000 D. 950,000

Use the following information to answer items 2 and 3:


On July 1, 2018, Viva Company purchased as a long-term investment P1,000,000 of Vivo Company’s 8% bonds for
P946,000, including accrued interest. The bonds were purchased to yield 10% interest. The bonds mature on
January 2024 and pay interest annually on January 1. Viva Company used the effective interest method of
amortization.

27. What is the interest income for 2018?


A. 40,000 B. 45,300 C. 80,000 D. 90,600

28. On December 31, 2018, what is the carrying amount of the investment in bonds?
A. 911,300 B. 916,600 C. 953,300 D. 960,600

Use the following information to answer items 4 and 5:


On January 1, 2018, NY Company purchased bonds with face amount of P8,000,000 for P7,679,000 as a long-term
investment. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the
rate of P2,000,000 annually every December 31 and the interest is payable annually also every December 31.

29. What is the interest for 2018?


A. 767,900 B. 800,000 C. 921,480 D. 960,000

30. What is the carrying amount of the investment in bonds on December 31, 2018?
A. 5,759,250 B. 5,800,480 C. 7,759,250 D. 7,800,480

Use the following information to answer items 6 and 7:


On January 1, 2018, Dre Company purchased 5-year bonds with face amount of P8,000,000 and stated interest of
10% per year payable semi-annually on June 30 and December 31. The bonds were acquired to yield 8%.
PV of an annuity of 1 for 10 periods at 5% 7.72
PV of an annuity of 1 for 10 periods at 4% 8.11
PV of 1 for 10 periods at 5% 0.6139
PV of 1 for 10 periods at 4% 0.6756

31. What is the market price or purchase price of the bonds?


A. 7,351,200 B. 7,382,400 C. 8,617,600 D. 8,648,800

32. What is the carrying amount of the bond investment on December 31, 2018?
A. 8,302,848 B. 8,538,542 C. 8,540,704 D. 8,594,752

At the beginning of current year, JJ Company purchased ten-year bonds with a face amount of P1,000,000 and a
stated interest rate of 8% per year payable semi-annually June 30 and December 31. The bonds were acquired to
yield 10%.

PV of 1 for 10 periods at 10% 0.386


PV of 1 for 20 periods at 5% 0.377
PV of an annuity of 1 for 10 periods at 10% 6.145
PV of an annuity of 1 for 20 periods at 5% 12.462

33. What is the market price of the bonds?


A. 875,380 B. 1,000,000 C. 1,100,000 D. 1,124,620

34. On January 1, 2020, RC Company purchased serial bonds with face amount of P3,000,000 and stated 12%
interest payable annually every December 31. The bonds are to be held as financial asset at amortized cost
with a 10% effective yield. The bonds mature at an annual installment of P1,000,000 every December 31.
The present value of 1 at 10% for one period is 0.91, for two periods is 0.83, and for three periods 0.75.
What is the present value of the serial bonds on January 1, 2020?
A. 3,045,000 B. 3,060,000 C. 3,106,800 D. 3,149,400

Use the following information to answer items 10 to 12:


On January 1, 2019, NV Company purchased bonds with face amount of P5,000,000 for P4,760,000 including
transaction cost of P160,000. The business model is to collect contractual cash flows and to sell the financial asset.
The bonds mature on December 31, 2019 and pay 10% interest annually on December 31 with a 12% effective
yield. The bonds are quoted at 102 on December 31, 2019 and 105 on December 31, 2020. The bonds are sold on
June 30, 2021 at 110 plus accrued interest.

35. What amount of unrealized gain should be reported as component of other comprehensive income for
2019?
A. 0 B. 100,000 C. 268,800 D. 340,000

36. What amount of unrealized gain should be reported as component of other comprehensive income for
2020?
A. 0 B. 70,256 C. 221,200 D. 339,056

37. What amount should be recognized as gain on sale of the bond investment on June 30, 2021?
A. 250,000 B. 544,528 C. 589,056 D. 794,528

Use the following information to answer items 13 to 15:


On January 1, 2018, KQ Company purchased bonds with face amount of P5,000,000. The entity paid P4,600,000 plus
transaction cost of P142,000. The bonds mature on December 31, 2020 and pay 6% interest annually on December
31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2018 and 110 on December
31, 2019. The business model in managing the financial asset is to collect contractual cash flows that are solely
payments of principal and interest and also to sell the bonds in the open market.

38. What amount of unrealized gain should be reported as component of other comprehensive income for
2018?
A. 0 B. 250,000 C. 400,000 D. 428,640

39. What cumulative amount of unrealized gain should be reported as component of other comprehensive
income in the statement of changes in equity for 2019?
A. 0 B. 164,291 C. 500,000 D. 592,931
40. What is the interest income for 2019?
A. 300,000 B. 379,360 C. 385,709 D. 392,931

Use the following information to answer items 16 to 19:


On January 1, 2018, Mars Company purchased bonds with face amount of P4,000,000 for P4,206,000. The business
model in managing the financial asset is to collect contractual cash flows that are solely payments of principal and
interest and also to sell the bonds in the open market. The bonds mature on December 31, 2020 and pay 10%
interest annually on December 31 each year with 8% effective yield. The bonds are quoted at 95 on December 31,
2018 and 90 on December 31, 2019.

41. What amount of unrealized loss should be reported as component of other comprehensive income in 2018?
A. 0 B. 342,480 C. 406,000 D. 469,520

42. What amount of unrealized loss should be reported as component of other comprehensive income in 2019?
A. 0 B. 131,398 C. 200,000 D. 473,878

43. What amount of cumulative unrealized loss should be reported in the statement of changes in equity for
2019?
A. 0 B. 406,000 C. 473,878 D. 606,000

44. What is the carrying amount of the bond investment on December 31, 2019?
A. 3,600,000 B. 3,800,000 C. 4,206,000 D. 4,673,878

Use the following information to answer items 20 to 23:


On January 1, 2019, Woot Company purchased 12% bonds with face amount of P5,000,000 for P5,500,000 including
transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated January 1, 2019 and
pay interest annually on December 31 of each year. The bonds are quoted at 115 on December 31, 2019. The entity
has irrevocably elected the fair value option.

45. What amount of gain from change in fair value should be reported for 2019?
A. 0 B. 250,000 C. 350,000 D. 750,000

46. What amount of interest income should be reported for 2019?


A. 540,000 B. 550,000 C. 600,000 D. 660,000

47. What is the carrying amount of the bond investment on December 31, 2019?
A. 5,400,000 B. 5,450,000 C. 5,500,000 D. 5,750,000

48. What total amount of income from the investment should be reported in the income statement for 2019?
A. 540,000 B. 890,000 C. 900,000 D. 950,000

RECLASSIFICATION OF DEBT INVESTMENTS


Use the following information to answer items 24 to 27:
On January 1, 2018, ABC Co. purchased 6% bonds in the face amount of P4,000,000. The bonds mature on January
1, 2023 and were purchased for P3,530,000 to yield 9%. The entity classified the bonds as held for trading and
interest is payable annually every December 31.

Fair value Effective rate


December 31, 2018 3,490,000 10%
December 31, 2019 3,425,000 12%

On December 31, 2018, the entity changed the business model to collect contractual cash flows and also to sell the
bonds in the open market.

49. What is the interest income for 2018?


A. 212,016 B. 240,000 C. 318,024 D. 360,000

50. What is the unrealized loss included in profit or loss for 2018?
A. 0 B. 40,000 C. 470,000 D. 510,000

51. What is the interest income for 2019?


A. 240,000 B. 349,000 C. 353,000 D. 400,000

52. What amount of unrealized loss is recognized in OCI for 2019?


A. 0 B. 174,000 C. 401,000 D. 575,000

Use the following information to answer items 28 to 31:


On January 1, 2018, ABC Co. purchased 8% bonds in the face amount of P4,000,000. The bonds mature on January
1, 2023 and were purchased for P4,335,000 to yield 6%. Interest is payable annually every December 31. The
business model for this investment is to collect contractual cash flows composed of principal and interest and to sell
the asset in the open market.

Fair value Effective rate


December 31, 2018 3,870,000 9%
December 31, 2019 3,615,000 12%

On December 31, 2018, the entity changed the business model for this investment to realize fair value changes.

53. What is the interest income for 2018?


A. 240,000 B. 260,100 C. 320,000 D. 346,800

54. What is the unrealized loss recognized in OCI for 2018?


A. 0 B. 130,000 C. 405,100 D. 465,000

55. What is the interest income for 2019?


A. 320,000 B. 360,000 C. 384,759 D. 480,000

56. What total amount is included in profit or loss in 2018 as a result of the reclassification from FVOCI to FVPL?
A. 255,000 B. 385,000 C. 405,100 D. 660,100

Use the following information to answer items 32 to 36:


On January 1, 2018, Von Company purchased bonds with face amount of P5,000,000. The company paid P4,500,000
plus transaction cost of P168,600. The bonds mature on December 31, 2021 and pay 6% interest annually on
December 31 of each year with 8% effective yield.

The bonds are quoted at 105 on December 31, 2018 and 110 on December 31, 2019. The business model in
managing the financial asset is to collect contractual cash flows and also to sell the bonds in the open market. The
entity has not elected the fair value option.

On December 31, 2019, the entity changed the business model to collect only contractual cash flows. On December
31, 2020, the bonds are quoted at 115 and the market rate of interest is 10%.

57. What amount of unrealized gain should be reported as component of OCI for 2018?
A. 250,000 B. 690,000
C. 507,912 D. -0-

58. What amount of cumulative unrealized gain should be reported as component of OCI in the statement of
changes in equity for 2019?
A. 500,000 B. 678,545
C. 250,000 D. 875,200

59. What amount of unrealized gain should be reported as component of OCI for 2019?
A. 500,000 B. 250,000
C. 170,633 D. 185,200

60. What is the interest income for 2020?


A. 300,000 B. 500,000
C. 385,716 D. 369,984

61. What is the carrying amount of the investment on December 31, 2020?
A. 4,694,784 B. 4,668,600
C. 4,907,171 D. 5,750,000

Use the following information to answer items 37 to 41:


On January 1, 2018, ABC Co. purchased bonds with face amount of P2,000,000 for P1,900,500 including transaction
cost of P100,500. The business model for this investment is to collect contractual cash flows which are solely
payments of principal and interest. The entity did not elect the fair value option. The bonds mature on December 31,
2019 and pay 8% interest annually every December 31 with a 10% effective yield. On December 31, 2018, the entity
changed the business model for this investment to collect contractual cash flows and to sell the financial asset in the
open market. The bonds are quoted at 110 on January 1, 2019 and 120 on December 31, 2019.

62. What is the interest income for 2018?


A. 152,040 B. 160,000 C. 190,050 D. 200,000

63. What amount of unrealized gain in OCI should be recognized on January 1, 2019?
A. 0 B. 200,000 C. 269,450 D. 290,500

64. What cumulative amount in OCI is recognized in the statement of changes in equity for 2019?
A. 166,945 B. 269,450 C. 436,395 D. 499,500

65. What is the interest income for 2019?


A. 180,244 B. 193,055 C. 220,000 D. 225,306

66. What is the carrying amount of the investment on December 31, 2019?
A. 1,930,500 B. 1,963,605 C. 2,200,000 D. 2,400,000

Use the following information to answer items 42 to 44:


On January 1, 2018, SS Company purchased 10% bonds in the face amount of P3,000,000. The bonds mature on
January 1, 2028 and were purchased for P3,405,000 to yield 8%. The company used the effective interest method of
amortization and interest is payable annually every December 31. The business model for this investment is to collect
contractual cash flows composed of interest and principal.

On December 31, 2019, the entity changed the business model for this investment to realize fair value changes. On
January 1, 2020, the fair value of the bonds was P2,845,000 at an effective rate of 11%.

67. What is the interest income for 2019?


A. 337,740 B. 300,000
C. 272,400 D. 270,192

68. What amount in profit or loss should be recognized in 2020 as a result of the reclassification?
A. 531,600 B. 502,592
C. 154,200 D. -0-

69. What is the interest income for 2020?


A. 300,000 B. 312,950
C. 267,807 D. 284,500

Use the following information to answer items 45 to 48:


On January 1, 2018, RR Company purchased 9% bonds in the face amount of P6,000,000. The bonds mature on
January 1, 2023 and were purchased for P5,555,000 to yield 11%. The entity classified the bonds as held for trading
and interest is payable annually every December 31. The entity provided the following information about fair value of
the bonds and effective rate:

Fair value Effective rate


December 31, 2018 5,450,000 12%
December 31, 2019 6,155,000 8%
On December 31, 2019, the company changed the business model for this investment to collect contractual cash
flows composed of principal and interest.

On January 1, 2020, the fair value of the bonds remained unchanged.

70. What is the interest income for 2018?


A. 540,000 B. 610,922
C. 660,000 D. 661,918

71. What amount of unrealized should be recognized in profit or loss for 2018?
A. 500,000 B. 450,000
C. 105,000 D. -0-

72. What amount of unrealized gain should be recognized in profit or loss for 2019?
A. 155,000 B. 600,000
C. 705,000 D. -0-

73. What is the interest income for 2020?


A. 492,400 B. 540,000
C. 480,000 D. 677,050

INCLUSIONS AND EXCLUSIONS


VV Company provided the following data:

Items counted in the bodega P 4,000,000


Items included in the count specifically segregated per sale contract 100,000
Items in the 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

74. What is the correct amount of inventory?


A. 5,700,000 B. 6,000,000
C. 5,800,000 D. 5,150,000

AA Company included the following items in inventory:

Materials P 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 company-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, including freight of P30,000 360,000
Goods held on consignment, at sales price (cost, P150,000) 200,000
75. What is the correct amount of inventory?
A. 5,375,000 B. 5,500,000
C. 5,540,000 D. 5,250,000

OO Company has incurred the following costs during the current year:

Cost of purchases based on vendors’ invoices P 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 employees in the 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

76. What is the total cost of purchases?


A. 5,700,000 B. 6,100,000
C. 6,700,000 D. 6,500,000

77. SS Company regularly buys goods from a supplier and is allowed trade discounts of 20% and 10% from the
list price. SS 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 B. 447,000
C. 438,360 D. 435,000

Use the following information to answer items 6 and 7:


On June 1, 2018, RR Company sold merchandise with a list price of P5,000,000 to BFV Company on account. RR
allowed trade discounts of 30% and 20%. On June 11, 2018, the customer paid in full. Credit terms were 2/10, n/30
and the sale was made FOB shipping point. RR prepaid P200,000 of delivery costs for BFV as an accommodation.

78. What amount of should be reported as sales revenue?


A. 5,000,000 B. 2,800,000
C. 3,500,000 D. 2,500,000

79. What amount was received by RR from BFV as remittance in full?


A. 2,744,000 B. 2,940,000
C. 2,944,000 D. 3,140,000

80. On April 1, 2018, MM Company recorded purchases of inventory of P800,000 and P1,000,000 under credit
terms of 2/15, net 30.The payment due on the P800,000 purchase was remitted on April 16. The payment
due on the P1,000,000 purchase was remitted on May 1. Under the net method and gross method, these
purchases should be included at what respective amounts in the determination of cost of goods available for
sale?

Net method Gross method


A. 1,784,000 1,764,000
B. 1,764,000 1,800,000
C. 1,764,000 1,784,000
D. 1,800,000 1,764,000

AA Company reported inventory on December 31, 2018 at P6,000,000 based on a physical count of goods priced at
cost and before any necessary year-end adjustments relating to the following:
 Included in the physical count were goods billed to a customer FOB shipping point on December 30, 2018.
These goods had a cost of P125,000 and were picked up by the carrier on January 2, 2019.
 Goods shipped FOB shipping point on December 28, 2018 from a vendor to AA were received and recorded
on January 2, 2019. The invoice cost was P300,000.
81. What amount should be reported as inventory on December 31, 2018?
A. 5,875,000 B. 6,000,000
C. 6,175,000 D. 6,300,000

Katindig Company conducted a physical count on December 31, 2020 which revealed inventory with a cost of
P4,410,000.

The following items were not included in the physical count:

Merchandise held by Katindig on consignment P 610,000


Merchandise shipped by Katindig FOB destination to a customer on December 31,
2020 and was received by the customer on January 5, 2021 380,000
Merchandise shipped by Katindig FOB shipping point to a customer on December
31, 2020 and was received by the customer on January 5, 2021 460,000
Merchandise shipped by a vendor FOB destination on December 31, 2020 was
received by Katindig on Janauary 5, 2021 830,000
Merchandise purchased FOB shipping point was shipped by the supplier on
December 31, 2020 and received by Katindig on January 5, 2021 510,000

82. What is the correct amount of inventory on December 31, 2020?


A. 5,300,000 B. 4,690,000
C. 3,800,000 D. 4,920,000

Cardo Company reported accounts payable on December 31, 2019 at P4,500,000 before any necessary year-end
adjustments relating to the following transactions:
 On December 27, 2019, Cardo wrote and recorded checks to creditors totaling P2,000,000 causing an
overdraft of P500,000 in Cardo’s bank account on December 31, 2019. The checks were mailed on January
5, 2020.
 On December 28, 2019, Cardo purchased and received goods for P750,000, terms 2/10, n/30. Cardo
records purchases and accounts payable at net amount. The invoice was recorded and paid January 3,
2020.
 Goods shipped FOB destination on December 24, 2019 from a vendor to Cardo were received January 8,
2020. The invoice cost was P325,000.

83. On December 31, 2019, what amount should be reported as accounts payable?
A. 7,575,000 B. 7,250,000
C. 7,235,000 D. 7,553,500

Marco Company’s usual sales terms are net 60 days, FOB shipping point. Sales, net of returns and allowances,
totaled P9,200,000 for the year ended December 31, 2018, before year-end adjustments.
 On December 28, 2018, Marco authorized a customer to return, for full credit, goods shipped and billed at
P200,000 on December 15, 2018. The returned goods were received by Marco on January 2, 2019, and a
P200,000 credit memo was issued and recorded on the same date.
 Goods with an invoice amount of P300,000 were billed and recorded on January 3, 2019. The goods were
shipped on December 30, 2018.
 Goods with an invoice amount of P400,000 were billed and recorded on December 30, 2018. The goods
were shipped on January 2, 2019.
 On January 5, 2019, a customer notified Marco that goods billed and shipped on December 21, 2019 were
lost in transit. The invoice amount was P500,000.

84. What is the correct amount of net sales for 2018?


A. 9,300,000 B. 9,100,000
C. 8,400,000 D. 8,900,000

Poodle Company’s year-end inventory balance on December 31, 2018 is P1,650,000 based on physical count and
before considering the following transactions:

 Goods shipped to Poodle Company FOB Destination on December 20, 2018, were received on January 2,
2019. The invoice cost is P300,000.
 Goods shipped to Poodle Company FOB shipping point on December 28, 2018, were received on January 4,
2019. The invoice cost is P170,000.

 Goods shipped from Poodle Company to a customer FOB destination on December 27, 2018 were received
by the customer on January 3, 2019. The sale price is P400,000 and the cost is P220,000.

 Goods shipped from Poodle Company to a customer FOB destination on December 28, 2018 were received
by the customer on December 30, 2018. The sale price is P200,000 and the cost is P130,000.

 Goods shipped from Poodle Company to a customer FOB shipping point on December 26, 2018 were
received by the customer on January 7, 2019. The sale price is P250,000 and the cost is P120,000.

85. What is the correct inventory balance on December 31, 2018?


A. 2,170,000 B. 2,160,000 C. 2,290,000 D. 2,040,000

Use the following information to answer items 14and15:


Miles Company, a wholesaler, budgeted the following sales for the indicated months:
June July August

Sales on account P2,700,000 P2,760,000 P2,850,000

Cash sales 270,000 300,000 390,000

Total sales P2,970,000 P3,060,000 P3,240,000

All merchandise is marked up to sell at its invoice cost plus 20%. Merchandise inventories at the beginning of each
month are at 30% of that month's projected cost of goods sold.

86. The cost of goods sold for the month of June is anticipated to be
a. 2,160,000 b. 2,250,000 c. 2,280,000 d. 2,475,000

87. Merchandise purchases for July are anticipated to be


a. 2,448,000 b. 3,114,000 c. 2,550,000 d. 2,595,000

COST FLOW
Mallow Company had 150,000 units of Product Z on hand at January 1, costing P21 each.

Purchases of product Z during the month of December were:

Units Unit cost


December 10 200,000 22
18 250,000 23
29 100,000 24

A physical count on December 31 shows 250,000 units of product Z on hand.

88. What is the cost of the inventory on December 31 under the FIFO method?
A. 5,850,000 B. 5,550,000
C. 5,350,000 D. 5,250,000

JJ Company used the perpetual system.

The following information has been extracted from the records about one product:

Units Unit cost Total cost


Jan. 1 Beginning balance 8,000 70.00 560,000
Jan. 6 Purchase 3,000 70.50 211,500
Feb. 5 Sale 10,000
Mar. 5 Purchase 11,000 73.50 808,500
Mar. 8 Purchase return 800 73.50 58,800
Apr. 10 Sale 7,000
Apr. 30 Sale return 300

89. If the FIFO cost flow is used, what is the cost of the inventory on April 30?
A. 330,750 B. 315,000
C. 433,876 D. 329,360

During January, Penny Company which used a perpetual inventory system recorded the following information
pertaining to inventory:

Units Unit cost Total cost Units on hand


Balance on 1/1 10,000 100 1,000,000 10,000
Purchased on 1/7 6,000 300 1,800,000 16,000
Sold on 1/20 9,000 7,000
Purchased on 1/25 4,000 500 2,000,000 11,000

90. Under the moving average method, what amount should Penny report as inventory on January 31?
A. 2,640,000 B. 3,225,000
C. 3,300,000 D. 3,900,000

TBH Company provided the following data relating to an inventory item:

Units Unit cost Total cost


Jan. 1 Beginning balance 5,000 200 1,000,000
12 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
29 Purchase 16,000 150 2,400,000
30 Purchase return 2,000 150 300,000

91. Under the perpetual system, what is the moving average unit cost on January 31?
A. 167 B. 165
C. 181 D. 225

Use the following information for items 22 through 24:


Starrs Company sells a new product. During a move to a new location, the inventory records for the product were
misplaced. The company has been able to gather some information from the purchases and sales records. the March
purchases are as follows:

Quantity Unit cost


March 5 10,000 65.00
10 12,000 70.00
15 15,000 60.00
25 14,000 55.00

On March 31, 17,000 units were on hand.

The sales for March amount to P6,000,000 comprising 60,000 units. Gross profit on sales for March was P2,400,000.
The company has always used a periodic FIFO inventory costing system.

92. What is the cost of the inventory on March 1?


A. 760,000 B. 950,000 C. 1,390,000 D. 2,400,000

93. What is the cost of the inventory on March 31?


A. 770,000 B. 950,000 C. 1,670,000 D. 3,600,000
94. What is the cost of the inventory on March 31 if average-periodic method is used?
A. 950,000 B. 1,004,545 C. 1,053,333 D. 1,670,000

LOWER OF COST AND NET REALIZABLE VALUE


HQ Company provided the following inventory data at year-end:

Cost NRV

Product A 2,200,000 2,500,000

Product B 1,700,000 1,500,000

Product C 700,000 800,000

Product D 400,000 500,000

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


A. 5,000,000 B. 5,300,000
C. 4,800,000 D. 5,200,000

On the night of September 30, 2020, a fire destroyed most of the merchandise inventory of AA Company.

All goods were completely destroyed except for partially damaged goods that normally sell for P100,000 and that had
an estimated net realizable value of P25,000 and undamaged goods that normally sell for P60,000.

Inventory, January 1 P 660,000


Net purchases, January through September 30 4,240,000
Net sales, January 1 through September 30 5,600,000

Total 2019 2018 2017


Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of sales 6,750,000 3,840,000 2,200,000 710,000
Gross profit 2,250,000 1,160,000 800,000 290,000

96. What is the estimated amount of fire loss on September 30, 2020?
A. 700,000 B. 615,000
C. 630,000 D. 580,000

Use the following information for items 37 and 38:


On May 31, 2018, a fire completely destroyed the work in process inventory of Wells Company. Physical inventory
figures were published as follows:

Inventory: January 1, 2018 May 31, 2018


Raw materials P 15,000 P 30,000
Work-in-process 50,000 --
Finished goods 70,000 60,000

Sales for the first five months of 2018 were P150,000. Raw materials purchased were P50,000. Freight on purchases
was P5,000. Direct labor for the five months was P40,000. To determine the value of the destroyed inventory, the
insurance adjusters have agreed to use an average gross profit rate of 32.5%. Manufacturing overhead was 45% of
direct labor cost.

97. The value of the goods manufactured and completed as of May 31, 2018 was
A. 60,000 B. 90,000 C. 95,000 D. 91,250

98. The value of destroyed work-in-process inventory as determined by the insurance adjusters would be
A. 56,750 B. 65,750 C. 86,750 D. 57,650
Use the following information to answer items 39 and 40:
Ching Company used the retail inventory method to approximate the ending inventory:

Cost Retail
Beginning inventory 650,000 1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchases allowances 150,000
Departmental transfer in 200,000 300,000
Markup 400,000
Markup cancellation 100,000
Markdown 1,200,000
Markdown cancellation 200,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting loss 600,000
Estimated normal shrinkage 400,000

99. What is the estimated cost of ending inventory using the conservative approach?
A. 2,400,000 B. 2,460,000
C. 3,060,000 D. 2,700,000

100. What is the estimated cost of ending inventory using the average cost approach?
A. 2,560,000 B. 2,624,000
C. 3,264,000 D. 2,880,000

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