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Multiple Choice: Theory

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 the production
process

2. Goods on 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 consignee
d. neither the consignor nor the consignee

3. When using the periodic inventory method, which of the following generally would not be
separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases during the period
b. Cash (purchase) discounts taken during the period
c. Purchase returns and allowances of merchandise during the period
d. Cost of transportation – in for merchandise purchases during the period

4. Which of the following inventory costing methods reports most closely the current cost of
inventory on the statement of financial position?
a. First in, first out
b. Specific identification
c. Last in, first out
d. Weighted average

5. In a period of rising prices, the inventory cost allocation method that tends to result in the
highest reported net income is
a. first in, first out
b. specific identification
c. moving average
d. last in, first out

6. The retail inventory method would include which of the following in the calculation of the
goods available for sale at both cost and retail?
a. purchase returns
b. sales returns
c. markdowns
d. markups

7. When using the moving average method of inventory valuation, a new unit cost must be
computed after each
 a. purchase
b. issuance from inventory
c. purchase and issuance from inventory
d. month – end

8. In periodic inventory system that uses the weighted average cost flow method, the
beginning inventory is
a. net purchases minus the ending inventory
b. net purchases minus the cost of goods sold
c. total goods available for sale minus the net purchases
d. total goods available for sale minus the cost of goods sold

9. The use of the gross profit method assumes

a. the amount of gross profit is the same as in prior years
b. sales and cost of goods sold have not changed from previous year
c. inventory values have not increased from previous years
d. the relationship between sales price and cost of goods sold is similar in
prior years.

10. The average retail method is based on the assumption that the
a. ratio of gross margin to sales is approximately the same each period
b. ratio of cost to retail changes at a constant rate
c. beginning inventory and the cost of goods sold contain the same proportion of
high – cost and low – cost ratio goods
d. the gross margin percentage applicable to ending inventory and to the
goods sold during the period is the same

11. Company’s unreleased or undelivered checks should be

a. Restored to cash account even though the said check is not recorded
b. Restored to cash account only if the check is previously recorded as a
disbursement
c. Reported as current receivables
d. Not reported at all

12. Compensating balance

a. If legally restricted is reported as part of the regular cash account
b. If legally restricted is reported as cash held as compensating balance
and classified as current asset if related to short term loan
c. If legally restricted is reported as cash held as compensating balance and
classified as current asset if related to long term loan
d. If not legally restricted is reported separately in the current asset section of the
statement of financial position.

13. Which of the following is cash for financial reporting purposes assuming the balance
sheet date is December 31, 2019?
a. Check payable to a supplier unreleased at the Balance Sheet date
b. Check received from a customer dated January 5, 2020
c. Check received from a customer marked as NSF/DAIF
d. Undeposited customer’s check which is already outstanding for more than
6months at the Balance Sheet date
 14. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and postal money order
b. Unrestricted compensating balance
c. Dividend, interest and tax fund
d. Postdated and stale checks from customers

15. To qualify for reporting as part of cash in the current assets section of the statement of
financial position, cash items must be any of the following except:
a. Unrestricted
b. Intended for the payment of operating expenses
c. Cash fund for the acquisition of non-current asset which is expected to
be disbursed within 12months from reporting date
d. Intended for the settlement of current liabilities

16.Petty cash fund is established to

a. Ease the payment of any disbursements of the company
b. Determine the personality of the petty cash custodian
c. Pay small amounts of expenditures
d. Accommodate petty cash receipts and payments

17. Which of the following statement is not an example of cash equivalents?

a. 90day treasury bills
b. Treasury bills purchased one month prior to its maturity
c. Money market fund purchased six months prior to its maturity but with
remaining maturity of 2months after the balance sheet date

18. Bank statement may provide information about all of the following except
a. Total checks paid by the bank
b. Total deposits acknowledged by the bank
c. Deposit in transit
d. Bank service charge

Identification

Identify the following item if INCLUDED or EXCLUDED as inventory of Mc inasal as of

December 31, 2019.

1. Raw materials of Mc inasal I

2. Storage cost of Finished Goods E
3. Storage cost of Work in Process I
4. Depreciation expense of factory equipment I
5. Mc inasal purchased goods from Mc pinirito, FOB shipping point and shipped on
January 2, 2020 but received by Mc inasal on January 5, 2020. E
6. Mc inasal purchased goods from Mc nilaga, FOB destination and shipped on January 2,
2020 but received by Mc inasal on January 5, 2020. E
7. Shipped finished goods on December 27, 2019 but received on January 2,2020. FOB
 Shipping point E
8. Shipped raw materials on December 27, 2019 but received on January 2,2020. FOB
Shipping point I
9. Shipped finished goods on December 27, 2019 but received on January 2,2020. FOB
Destination I
10. Shipped raw materials on December 27, 2019 but received on January 2,2020. FOB
Destination E
11. Mc inasal will deliver goods to Mc Donut on December 29,2019 and all the goods were
inside of the truck already, under FOB shipping point term. The driver of the truck that
will deliver the goods has LMB and Hang Over, because of that delivery date was
change on January 2, 2020. E
12. Mc inasal will deliver goods to Mc adobo on December 26,2019 and all the goods were
inside of the truck already, under FOB Destination. The driver of the truck that will deliver
the goods has LMB and Hang Over, because of that delivery date was change on
December 28, 2019 and received by Mc adobo on December 30,2019. E
13. Mc sinigang received goods from Mc inasal on December 30,2019 under FOB
Destination term but the goods were unloaded from the delivery truck only on January 1,
2020. E
14. Mc sinaing na tulingan received goods from Mc inasal on December 30,2019 under FOB
Shipping point but the goods were unloaded from the delivery truck only on January 1,
2020. E