INVENTORIES

1. Which inventory costing method most closely approximates current cost for ending inventory?
a. average c. LIFO
b. FIFO d. Specific Identification

2. The pricing of issues from inventory must be deferred until the end of the accounting period under the
following method of inventory valuation
a. Moving average c. Specific Identification
b. Weighted average d. FIFO

3. An inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending
inventory valuation is
a. FIFO c. Specific Identification
b. LIFO d. Weighted average

4. Which method of inventory pricing best approximates specific identification of the actual flow of costs
and units in most manufacturing situations?
a. Average cost c. Moving average
b. FIFO d. Weighted average

5. Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods
sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when
inventory is valued using the average cost method?
a. Prices decreased c. Prices increased
b. Prices remained unchanged d. Prices trend cannot be determined

6. In a period of rising prices, the inventory method which tends to give the highest reported net income is
a. Moving average c. Specific identification
b. FIFO d. Weighted average

7. Fortune Company had 10,000 units of product A on hand at December 1, 2019, costing P40 each.
Purchases of product A during the month of January were as follows:
Units Unit Cost Cost
December 10 12,000 P42 P504,000
18 15,000 43 645,000
22 10,000 44 440,000
27 5,000 45 225,000
29 8,000 46 368,000
A physical count on December 31, 2019 shows 16,000 units of Product A on hand. What is the cost of
the inventory at December 31, 2019 under FIFO?
a. P683,500 c. P725,000
b. P698,000 d. P736,000

8. The following information pertains to Joy Company, seller of recliners for the year ended Dec. 31, 2019
Units Unit Cost Total Cost
January 1 Inventory on hand 200 P3,000 P 600,000
April 3 Purchase 300 3,200 960,000
July 1 Purchase 300 3,300 990,000
October 1 Purchase 200 3,400 680,000
December 26 Purchase 200 3,500 700,000
Total 1,200 P3,930,000
The company sold 400 recliners on June 25 and 500 on December 10. What is the weighted average
cost of the inventory on December 31, 2019?
a. P920,000 c. P 990,000
b. P982,500 d. P1,310,000

9. During January 2021 Forlorn Company recorded the following information pertaining to its inventory:
Units Unit cost Total cost
January 1 balance 20,000 P10 P200,000
January 15 sales 15,000
January 18 purchase 20,000 11 220,000
January 20 purchase 15,000 12 180,000
January 25 sales 24,000
January 30 purchases 14,000 15 210,000
January 31 sales 10,000

Question 1: Using the First-In First-Out method, what amount of inventory should Forlorn Company
report in its January 31, 2021 statement of financial position?
a. P240,000 c. P280,000
b. P260,000 d. P282,000
 Question 2: Using the moving average method, what amount of inventory should Forlorn Company
report in its January 31, 2021 statement of financial position?
a. P240,000 c. P280,000
b. P260,000 d. P300,000

10. Net realizable value (NRV) is

a. fair value plus estimated costs to complete and make a sale
b. selling price
c. selling price plus estimated costs to complete and make a sale
d. selling price less estimated costs to complete and make a sale

11. Under PAS 2, NRV is the general rule for valuing which of the following types of inventory?
a. Commodities held by broker-traders
b. Computer components held for sale to manufacturers.
c. Inventories priced on an item by-item basis, but not those priced on a total-inventory
basis.
d. All of the choices are held at NRV under PAS 2

12. Commodity broker-traders

a. Produce or raise commodities such as corn, wheat, or precious metals
b. Hold their inventory primarily to sell the commodities in the near term and generate a
profit from price fluctuations
c. Value their inventories at the lower-of-cost-or-net realizable value (LCNRV).
d. All of the choices are correct regarding broker-traders

13. Situations in which net realizable value is used to value inventory include
a. agricultural inventory c. commodities held by broker-traders
b. minerals and mineral products d. All of these are correct

14. Which statement is not true about the gross profit method of inventory valuation?
a. It may be used to estimate inventories for interim statements
b. It may be used to estimate inventories for annual statements
c. It may be used by auditors
d. It may be used when fire or other catastrophe destroys the inventory

15. An inventory method which is designed to approximate inventory valuation at the lower of cost or net
realizable value is
a. last-in, first-out c. conventional retail method
b. first-in, first-out d. specific identification

16. The retail inventory method is based on the assumption that the
a. final inventory and the total of goods available for sale contain the same proportion of
high-cost and low-cost ratio goods
b. ratio of gross margin to sales is approximately the same each period.
c. ratio of cost to retail changes at a constant rate.
d. proportions of markups and markdowns to selling price are the same.

17. Which statement is true about the retail inventory method?

a. It may not be used to estimate inventories for interim statements.
b. It may not be used to estimate inventories for annual statements
c. It may not be used by auditors.
d. None of these are correct.

18. When the conventional retail inventory method is used, markdowns are commonly ignored in the
computation of the cost to retail ratio because
a. there may be no markdowns in a given year
b. this tends to give a better approximation of the lower of cost or net realizable value.
c. markups are also ignored
d. this tends to result in the showing of a normal profit margin in a period when no
markdown goods have been sold

19. To produce an inventory valuation which approximates the lower-of-cost-or-net realizable value using
the conventional retail inventory method, the computation of the ratio of cost to retail should
a. include markups but not markdowns. c. ignore both markups and markdowns
b. include markups and markdowns. d. include markdowns but not markups.

20. Which of the following is not required when using the retail inventory method?
a. All inventory items must be categorized according to the retail markup percentage
which reflects the item’s selling price
b. A record of the total cost and retail value of goods purchased.
c. A record of the total cost and retail value of the goods available for sale
d. Total sales for the period.
21. Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or
net realizable value. Specific data with respect to each product follows:

Product #1 Product #2
Selling price P60 P130
Historical cost 40 70
Cost to sell 10 26
Cost to complete 15 40

In pricing its ending inventory using the lower-of-cost-or-net realizable value, what unit values should
Oslo use for products #1 and #2, respectively?
a. P35 and P64 c. P40 and P70
b. P50 and P104 d. P45 and P90

22. Robust Inc. has the following information related to an item in its ending inventory. Acer Top has a cost
of P502, a selling price of P568, a cost to complete of P53, and a cost to sell of P38. What is the lower-
of-cost-or-net realizable inventory value for Acer Top?
a. P515 c. P477
b. P502 d. P530

23. Rios, Inc. uses International Financial Reporting Standards (IFRS). In 2019, Rios, Inc. experienced a
decline in the value of its inventory resulting in a write-down of its inventory from P240,000 to
P200,000. The company used the loss method in 2019 to record the necessary adjustment and uses an
allowance account to reduce inventory to NRV. In 2020, market conditions have improved dramatically
and Rios, Inc.’s inventory increases to an NRV of P216,000. Which of the following will Rios, Inc. record
in 2020?
a. A debit to Recovery of Inventory Loss for P16,000
b. A credit to Recovery of Inventory Loss for P24,000
c. A debit to Allowance to Reduce Inventory to NRV of P16,000
d. A credit to Allowance to Reduce Inventory to NRV of P24,000

24. Gorgeous Co.’s pricing structure has been established to yield a gross margin of 30%. The following
data pertain to the year ended December 31, 2019: Sales, P2,200,000; Inventory, January 1, 2019,
P1,000,000; Purchases, P800,000; Freight cost on purchases, P20,000; Freight cost on merchandise
sold, P30,000; Inventory inside the company’s warehouse, per actual count on 12/31/19, P160,000;
Credit memo issued to customers for goods returned & received, P50,000; Credit memo issued to
customers for merchandise to be returned, 01/02/20, P40,000; Sales discount, P100,000 . Gorgeous is
satisfied that all sales and purchases have been fully and properly recorded. How much would
Gorgeous reasonably estimate as a shortage in inventory at December 31, 2019?
a. P343,000 c. P155,000
b. P183,000 d. P143,000

25. The records of Morning Company show the following for the current year:
Cost Retail
Beginning inventory 340,000 640,000
Purchases 4,500,000 7,300,000
Freight in 100,000
Purchase return 150,000 250,000
Purchase allowance 90,000
Departmental transfer in 100,000 160,000
Net markup 150,000
Net markdown 500,000
Sales 6,600,000
Sales allowance 50,000
Sales returns 150,000
Employee discount 100,000
Spoilage and breakage 200,000

Question 1: What is the amount of estimated ending inventory under the conventional retail and average
cost retail, respectively?
a. P480,000 & P512,000 c. P450,000 & P480,000
b. P480,000 & P450,000 d. P512,000 & P480,000

Question 2: What is the estimated ending inventory under the FIFO retail?
a. P480,000 & P512,000 c. P450,000 & P480,000
b. P480,000 & P450,000 d. P512,000 & P480,000