UNIVERSITY OF SANTO TOMAS
AMV-College of Accountancy
CA51010: INTERMEDIATE ACCOUNTING 2
G. Macariola
1.
Which of the following items should be included from a company’s reported
inventory?
a. Goods purchased subject to a buyback agreement
b. Goods still in transit sold under FOB buyer
c.
Goods still in transit purchased under FOB buyer
d. Goods out on consignment sold by the consignee at the BS date
2.
An entry debiting inventory and crediting cost of goods sold would be made when
a.
Merchandise is sold and the perpetual inventory is used.
b. Merchandise is sold and the periodic inventory method is used.
c.
Merchandise is returned and the periodic inventory method is used.
d. Merchandise is returned and the perpetual inventory method is used.
3.
In accounting for sales on consignment, sales revenue and the related cost of goods
sold should be recognized by the:
a. Consignor when the goods are shipped to the consignee.
b. Consignee when the goods are shipped to the third party.
c.
Consignor when notification is received that the consignee had sold the goods
d. Consignee when cash is received from the customer.
4.
Which of the following would result to an increase in accounts receivable of the
seller and increase in accounts payable of the buyer in a sale of goods on account?
a. FOB Destination, freight prepaid
b. FOB Destination, freight collect
c.
FOB Shipping point, freight prepaid
d. FOB Shipping point, freight collect
5.
When a company uses the periodic inventory system in accounting for its
merchandise inventory, which of the following is true?
a. Purchases are recorded in the cost of goods sold account
b. The inventory account is updated after each sale
c.
Cost of goods sold is computed at the end of the accounting periods rather than
at each sale
d. The inventory account is updated throughout the year as purchases are made
6.
An entity should include one of the following items in its merchandise inventory.
a. Goods purchased FOB destination still in transit
b. Goods purchased under buyback agreement
c. Goods purchased under FAS agreement still in transit
d. Goods purchased under DES agreement still in transit
7.
Under PAS 2, which is not considered as items of inventory?
a. Supplies and materials awaiting use in the production process
b. Land and other property purchased and held for resale
c. Costs of service for which a service provider has not yet recognized the related
revenue
d. Abnormal amounts of wasted materials, labor and other production costs
8.
Under the periodic inventory system, the opening stock is the
a. Net purchases minus the total goods sold
b. Net purchases minus the closing stock
c. Total goods available for sale minus the net purchases
d. Total goods available for sale minus the total goods sold
9.
Which of the following terms would not result to recognition of freight-in on the
books of the buyer?
a. FOB Seller
b. FOB Buyer
c.
FOB Shipping point, freight prepaid
d. FOB Shipping point, freight collect
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10. PAS 2 Inventories requires that when inventories are written down to net realizable
value, they are written-down
a. On a class-by-class basis
c. On the basis of industry segment
b. On an item-by-item basis
d. On the basis of geographical segment
11. Which of the following costs of conversion CANNOT be included in the cost of
inventory?
a. Cost of direct labor
c. Factory rent and utilities
b. Salaries of sales staff
d. Factory overheads based on normal
capacity
12. Which of the following items should be included in a company’s inventory at the
balance sheet date?
a. Goods sold under buyback agreement
b. Goods in transit which were purchased FOB Buyer
c.
Goods received from another company on consignment
d. Goods in transit which were sold FOB Seller
13. When using the moving average method of inventory valuation, a new unit cost
must be computed after each
a. End of the month
b. Purchase and Sale of inventory
c. Purchase of inventory
d. Sale of inventory
14. Which of
a. Goods
b. Goods
c. Goods
d. Goods
the following items should be included in a company’s reported inventory?
still in transit sold under FOB Seller
sold under lay-away sale agreement (not yet paid in full)
purchased subject to a buyback agreement
sold on a bill and hold agreement
15. Which of
a. Goods
b. Goods
c. Goods
d. Goods
the following goods is includible in the inventory?
in transit sold FOB Buyer
in transit sold CF (Cost &Freight)
in transit purchased Ex-Ship
in transit sold free alongside (FAS)
16. The buyer paid the shipper freight charges and later asked for reimbursement from
the seller. The term agreed must have been___.
a. FOB Destination, Freight Prepaid
b. FOB Destination, Freight Collect
c. FOB Shipping Point, Freight Prepaid
d. FOB Shipping Point, Freight Collect
17. Which of the following items is correct?
a. Freight prepaid means that the freight charge on the goods shipped is already paid by the
seller; therefore, the seller always has the ownership of the goods in transit under freight
prepaid
b. When inventories are purchased with deferred settlement terms, the difference between
the purchase price for normal credit terms and the amount paid is recognized as part of
the cost of inventory
c. Storage costs of finished goods to maintain their quality are part of the cost of the
inventories
d. Freight and other handling charges on goods out on consignment are part of the cost of
goods consigned
18. The specific identification method of accounting for inventory is required for
a. All inventory items
b. Agricultural inventories.
c. Inventory items that are interchangeable
d. Inventory items that are not interchangeable and goods that are produced and
segregated for specific projects.
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19. Identify each statement if TRUE or FALSE
Statement 1: Specific identification method may be used for perpetual and periodic inventory
system
Statement 2: Under weighted average method, unit cost is computed by dividing the total
cost of goods sold by the total number of its units
a.
b.
c.
d.
True, True
True, False
False, False
False, True
20. The costing of inventory must be deferred until the end of reporting period under
which of the following method of inventory valuation?
a. FIFO perpetual
b. LIFO perpetual
c. Moving average
d. Weighted average
21. Lower
a.
b.
c.
d.
of cost and net realizable value as it applies to inventory is best described as the
Assumption to determine inventory flow.
Method of determining cost of goods sold.
Change in inventory value to net realizable value.
Reporting of a loss when there is a decrease in the future utility below the original cost
22. How should the issue price of bonds with non-detachable share warrants be
accounted for?
a. The proceeds are fully assigned to bonds.
b. The proceeds shall be assigned first to the warrants, at their market value and the
remainder to the bonds.
c. The proceeds shall be assigned first to the bonds, at their market value if sold
without the warrants; then the remainder of the issue price is assigned to the
warrants as part of equity.
d. The proceeds shall be allocated to the bonds and to the warrants based on relative
fair value.
23. The proceeds from the issuance of convertible bonds should be accounted for
a. Entirely as liability
b. Entirely as equity
c. Complex instrument
d. Compound instrument
24. The proceeds from the issuance of non-convertible bonds should be accounted for
a. Entirely as liability
b. Entirely as equity
c. Partially as liability and equity
d. Compound instrument
25. The proceeds from the issuance of bonds with detachable warrants should be
accounted for
a. Entirely as liability
b. Entirely as equity
c. Complex instrument
d. Compound instrument
26. The proceeds from the issuance of bonds with non-detachable warrants should be
accounted for
a. Entirely as liability
b. Entirely as equity
c. Complex instrument
d. Compound instrument
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27. An entity issued bonds with share warrants. Which of the following accounts will
decrease upon exercise of the warrants?
a. Cash
b. Share warrants outstanding
c. Carrying value of the bonds payable
d. Ordinary share capital
28. An entity issued convertible bonds. Which of the following accounts will increase
upon conversion of the bonds?
a. Cash
b. Share warrants outstanding
c. Carrying value of the bonds payable
d. Ordinary share capital
29. When convertible bonds are retired before maturity date, the difference between
the carrying value of the equity component and the retirement price is
a. Treated as a gain and taken to profit or loss
b. Treated as a loss and taken to profit or loss
c. Treated as a gain or loss and taken to profit or loss
d. Treated as a gain or loss and taken to equity
30. When bonds are retired before maturity date, the excess carrying value of the
bonds payable over the retirement price is
a. Treated as a gain and taken to profit or loss
b. Treated as a loss and taken to profit or loss
c. Treated as a gain or loss and taken to profit or loss
d. Treated as a gain or loss and taken to equity
Problem 1: A physical count on December 31, 2020 revealed that EARTH Company had inventory
with a cost of P4,400,000. The following items were excluded from this amount:
- Merchandise of P600,000 is held on consignment by EARTH.
- Goods costing P400,000 were shipped by EARTH “Ex-ship” to a customer on December 31,
2014. The customer received the goods on January 3, 2021.
- Merchandise costing P500,000 was shipped by EARTH “Free alongside” to a customer on
December 29, 2020. The customer received the goods on January 6, 2021.
- Goods costing P800,000 shipped by a vendor FOB destination on December 31, 2020 was
received by EARTH on January 7, 2021.
- Goods costing P700,000 was shipped by a supplier “CIF” on December 30, 2020 and
received by EARTH on January 10, 2021.
What is the correct amount of inventory on December 31, 2020?
a. P 4,900,000
c. P 5,500,000
b. P 5,400,000
d. P 6,000,000
Problem 2: MARS Company reported the 2020 year-end inventory at P7,600,000 before the
following adjustments:
* Goods costing PI,000,000 are out on consignment with a customer. These goods were not
included in the year-end inventory.
* Goods costing P250,000 were received from a vendor on January 5,2021. The goods were
shipped on December 31, 2020, terms FOB shipping point but the Mars included already
these inventories at year-end.
* Goods costing P850,000 were shipped on December 31,2020, and were received by the
customer on
January 2,2021. The terms of the invoice were FOB shipping point. The goods were included
in ending inventory in 2020.
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* A P350,000 shipment of goods to a customer on December 31, 2020, FOB destination, was
not included in the year-end inventory. The goods cost P260,000 and were delivered to the
customer on January 8,2021.
* An invoice for goods costing P350,000 was recorded as a purchase on December 31, 2020.
The related goods, shipped FOB destination, were received on January 2, 2021, and thus
were not included in the physical inventory.
* Goods valued at P650,000 are on consignment from a vendor. These goods are not
included in the year-end inventory.
* A P1,050,000 shipment of goods to a customer on December 30, 2020, terms FOB
destination, was recorded as a sale in 2020. The goods, costing P840,000 and delivered to
the customer on January 6,2021, were not included in 2020 ending inventory.
What is the correct inventory on December 31, 2020?
a. P 8,100,000
c. P 9,450,000
b. P 9,100,000
d. P 9,950,000
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