ADAMSON UNIVERSITY

INTERMEDIATE ACCOUNTING 1
INVENTORIES - QUIZ
1. Which of the following would not be reported as inventory?
a. Land acquired for resale by a real estate firm.
b. Agricultural produce held by a farm.
c. Partially completed goods held by a manufacturing company.
d. Machinery acquired by a manufacturing company for use in production process.

2. Goods in consignment should be included in the inventory of

a. the consignor but not the consignee.
b. the consignee but not the consignor.
c. both the consignor and the consignee.
d. neither the consignor nor the consignee.

3. Which of the following items should be included in inventory at the end of reporting
period?
a. goods in transit which were purchased FOB Shipping Point
b. goods in transit which were purchased FOB Destination
c. goods in transit to a customer which were sold FOB Shipping Point
d. goods on consignment received from another entity

4. Outlander Co. sold on credit merchandise having a list price of P200,000 with the
following terms: trade discount of 10% and 5%, 3/10; n/30. Which of the following
entries is correct to record collection of the account, given the indicated method of
accounting for cash discounts?
a. Gross Method: (Dr) Cash P165,870 (Cr) Accounts Receivable P165,870
b. Net Method: (Dr) Cash P165,870 (Dr) Sales Discount P5,130 (Cr) Accounts
Receivable P171,000
c. Net Method: (Dr) Cash P171,000 (Cr) Sales Discount Forfeited P5,130 (Cr)
Accounts Receivable P165,870
d. Gross Method: (Dr) Cash P194,000 (Dr) Sales Discount P6,000 (Cr) Accounts
Receivable P200,000

Compute the Invoice Price by deducting the series of trade discount

P200,000 x 10% = P20,000; P200,000 – 20,000 = P180,000
P180,000 X 5% = P9,000; P180,000 – 9,000 = P171,000 >>> Invoice Price

GROSS METHOD
Accounts Receivable 171,000
Sales 171,000
To record sale on account 3/10; n/30

Cash 165,870
Sales Discount 5,130
Accounts Receivable 171,000
To record collection net of 3% discount
P171,000 X 3% = P5,130
P171,000 – 5,130 = P165,870

None between choices A and D reflect the correct journal entry for collection as
shown above
NET METHOD
Accounts Receivable 165,870
Sales 165,870
To record sale on account 3/10; n/30

Accounts Receivable 165,870

Sales 165,870
To record collection if payment was received WITHIN the discount period

Cash 171,000
Accounts Receivable 165,870
Sales Discount Forfeited 5,130
To record collection if payment was received BEYOND the discount period
P171,000 X 3% = P5,130
P171,000 – 5,130 = P165,870

Between choices B and C, it is letter C which reflects the correct journal entry. That
is, if the payment was received beyond the discount period

5. Gallery Sportswear, Inc. regularly buys sweaters from Bon Company and is allowed a
trade discount of 20% and 10% from the list price. Gallery made a purchase on March
20, 2019, and received an invoice with a list price of P90,000, a freight charge of P5,000,
and payment terms of net 30 days. What is the total cost of the inventory purchase?
a. P63,000
b. P64,000
c. P69,000
d. P69,800

Start computing the Invoice Price by, first, deducting the series of trade discount
P90,000 x 20% = P18,000; P90,000 – 18,000 = P72,000
P72,000 X 10% = P7,200; P180,000 – 9,000 = P64,800
OR
P90,000 X 80% = P72,000 (100% minus 20%)
P72,000 X 90% = P64,800 (100% minus 10%)

The, ADD the freight charge of P5,000 to arrive at the total invoice price of P69,800

6. On August 1 of the current year, Scooby Company recorded purchases of P800,000

and P1,000,000 under credit terms of 2/15, n/30. The payment due on the P800,000
purchase was remitted on August 14. The payment due on the P1,000,000 was remitted
on August 31. Under the net method and the gross method, these purchases should be
included at what respective amounts in the determination of cost of goods available for
sale?
a. P1,784,000 and P1,764,000
b. P1,764,000 and P1,800,000
c. P1,764,000 and P1,784,000
d. P1,800,000 and P1,764,000

NET METHOD
Aug 01 Purchases 784,000
Accounts Payable 784,000
 To record purchase on account P800,000 X 98%

Aug 01 Purchases 980,000

Accounts Payable 980,000
To record purchase on account P1,000,000 X 98%

Aug 14 Accounts Payable 784,000

Cash 784,000
To record payment of Aug 01 purchases WITHIN the discount period

Aug 31 Accounts Payable 1,000,000

Cash 980,000
Purchase Discount Lost 20,000
To record payment of Aug 01 purchases BEYOND the discount period

Based on the journal entries shown above, Total Purchases using NET Method is
P1,764,000. “Purchase Discount Lost” being an “Other Expense” is NEITHER
ADDED (to) NOR SUBTRACTED (from) the account “Purchases”.

GROSS METHOD
Aug 01 Purchases 800,000
Accounts Payable 800,000
To record purchase on account 2/15; N/30

Aug 01 Purchases 1,000,000

Accounts Payable 1,000,000
To record purchase on account 2/15; N/30

Aug 14 Accounts Payable 800,000

Cash 784,000
Purchase Discount 16,000
To record payment of Aug 01 purchases WITHIN the discount period

Aug 31 Accounts Payable 1,000,000

 Cash 1,000,000
To record payment of Aug 01 purchases BEYOND the discount period

Based on the journal entries shown above, Total Purchases using GROSS Method is
P1,784,000. “Purchase Discount” is DEDUCTED from the account “Purchases”.

Therefore, the answer is letter C

7. Harbor Company’s inventory on December 31, 2021 was P1,500,000 based on a

physical count of good priced at cost, and before any necessary year-end adjustment
relating to the following:
 Included in the physical count were goods billed to a customer FOB Shipping Point on
December 31, 2021. These goods had a cost of P30,000 and were picked up by the
carrier on January 10, 2022.
 Goods shipped FOB Destination on December 28, 2021 from a vendor to Harbor
Company were received on January 4, 2022. The invoice cost was P50,000.
What amount should be reported as inventory on December 31, 2021?
a. P1,420,000
b. P1,470,000
c. P1,500,000
d. P1,550,000

Analyze the effect, if any, of the given information

Included in the physical count were goods billed to a customer FOB Shipping Point
on December 31, 2021. These goods had a cost of P30,000 and were picked up by the
carrier on January 10, 2022. >>> Harbor is the SELLER in this transaction. Even
though the shipment term is FOB Shipping Point, Harbor STILL OWNS the goods
because shipment was done on a date (January 10, 2022) LATER THAN the
reporting period (December 31, 2021). Hence, it is just PROPER for Harbor to
INCLUDE the goods in its inventory

Goods shipped FOB Destination on December 28, 2021 from a vendor to Harbor
Company were received on January 4, 2022. The invoice cost was P50,000. >>>
Harbor is the BUYER in this transaction. Due to the shipment term, the goods are
STILL NOT PART of Harbor’s inventory. Hence, it has NO EFFECT on the
physical count of inventory conducted by Harbor.

Therefore, the correct answer is letter C.

USE THE FOLLOWING INFORMATION FOR ITEM NOS. 8 TO 10.

Friendly Company is a wholesale distributor of automotive replacement parts. The entity

revealed the following initial amounts on December 31, 2020:

Inventory at December 31 based on physical count – 1,250,000

Accounts Payable – 1,000,000
Sales – 9,000,000

A. Parts held on consignment from another entity to Friendly, the consignee, amounting
to P165,000 were included in the physical count on December 31, 2020 and in the
Accounts Payable

B. Parts amounting to P20,000 which were purchased and paid for in December 2020
were sold in the last week of 2020 and appropriately recorded as Sales of P28,000. The
parts were included in the physical count because the parts were in the loading dock
waiting to be picked up by the customer

C. Parts in transit to customers on December 31, 2020 that were shipped on December
28, 2020 FOB Shipping Point amounted to P34,000. The customers received the parts on
January 6, 2021. Sales of P40,000 for the parts were recorded by Friendly on January 2,
2021.

D. On December 31, 2020, retailers were holding at their stores P200,000 parts at cost
and P250,000 at retail.

E. Goods were in transit from a vendor on December 31, 2020. The cost of goods was
P25.000. The goods were shipped FOB Shipping Point on December 29, 2020

8. What is the correct amount of Inventory?

a. 1,300,000
b. 1,320,000
c. 1,334,000
d. 1,090,000
9. What is the correct amount of Accounts Payable?
a. 835,000
b. 960,000
c. 975,000
d. 860,000
10. What is the correct amount of Sales?
a. 9,250,000
b. 9,290,000
c. 9,040,000
d. 9,000,000

A. Parts held on consignment from another entity to Friendly, the consignee,

amounting to P165,000 were included in the physical count on December 31, 2020
and in the Accounts Payable >>> Friendly is the CONSIGNEE in this transaction.
DEDUCT P165,000 from “Inventory”; DEDUCT P165,000 from “Accounts
Payable”; NO EFFECT on “Sales”

B. Parts amounting to P20,000 which were purchased and paid for in December
2020 were sold in the last week of 2020 and appropriately recorded as Sales of
P28,000. The parts were included in the physical count because the parts were in
the loading dock waiting to be picked up by the customer >>> Friendly is both a
BUYER and SELLER in this information. DEDUCT P20,000 from “Inventory”
(because the parts are already sold although still unclaimed by the buyer); NO
EFFECT on “Accounts Payable” (because Friendly has already paid for the parts);
NO EFFECT on “Sales” (because Friendly has already appropriately recorded it as
Sales)

C. Parts in transit to customers on December 31, 2020 that were shipped on

December 28, 2020 FOB Shipping Point amounted to P34,000. The customers
received the parts on January 6, 2021. Sales of P40,000 for the parts were recorded
by Friendly on January 2, 2021. >>> Friendly is the SELLER in this transaction.
NO EFFECT on “Inventory” (because by the time Friendly conducted the physical
count, the parts are already on their way to the customers or no longer in the
custody of Friendly); NO EFFECT on “Accounts Payable”; ADD P40,000 to
“Sales” (Sales should have been recorded on December 28, 2020 and not on January
2, 2021)

D. On December 31, 2020, retailers were holding at their stores P200,000 parts at
cost and P250,000 at retail. >>> This is NOT a consignment arrangement between
Friendly and its retailers. Hence, NO EFFECT on “Inventory”; NO EFFECT on
“Accounts Payable”; NO EFFECT on “Sales”

E. Goods were in transit from a vendor on December 31, 2020. The cost of goods
was P25.000. The goods were shipped FOB Shipping Point on December 29, 2020
>>> Friendly is the BUYER in this transaction. ADD P25,000 to “Inventory”
(because of the shipment terms); ADD P25,000 to “Accounts Payable” (because of
the shipment terms); NO EFFECT on “Sales”

To summarize:
Inventory Accounts Payable Sales
Initial Amounts 1,250,000 1,000,000 9,000,000
A (165,000) (165,000) -
B (20,000) - -
C - - 40,000
D - - -
E 25,000 25,000 -
Correct Amounts 1,090,000 (d) 860,000 (d) 9,040,000 (c)