Act112.qs2-with-answers

ACT112 Quiz Series 2 (AY 2019-2020) 1.

The inventory account of Duke Company at December 31, 2020, included the following items: Inventory Amount Merchandise out on consignment at sales price (including markup of 35% on selling price) P15,000 Goods purchased, in transit (shipped FOB shipping point) ..... 6,000 Goods held by Duke on consignment .. 4,500 Goods out on approval (sales price P6,000, cost P4,000) ... 6,000 Based on this information, the inventory account at December 31, 2020, should be reduced by what amount? 11,750

2.

A markup of 25 percent on cost is equivalent to what markup on selling price? (rounded) 20 percent

3.

The following information is available for the Fister Company for 2020: Freight-in ........ P 50,000 Purchase returns .. 185,000 Selling expenses .. 357,000 Ending inventory .. 117,000 The cost of goods sold is equal to 400% of selling expenses. Compute the cost of goods available for sale. 1,545,000

4.

Hardy Company is a wholesale electronics distributor. On December 31, 2020, it prepared the following partial income statement: Gross sales .... P600,400 Sales discounts 400 Net sales ...... P600,000 Cost of goods sold: Beginning inventory ... P200,000 Net purchases 300,000 Given this information, if Hardy Company's gross margin is 30 percent of net sales, what is the correct ending inventory balance? 80,000

5.

The following information is available for the Becca Company for the three months ended June 30 of this year: Inventory, April 1 of this year .... P1,200,000 Purchases ........ 4,500,000 Freight-in ....... 300,000 Sales ... 6,400,000 The gross margin was 25 percent of sales. What is the estimated inventory balance at June 30? 1,200,000

6.

Miller Company needs an estimate of its ending inventory balance. The following information is available: Cost Retail Sales revenue .. P180,000 Beginning inventory ..... P 35,000 62,000 Net purchases .. 100,000 135,000 Gross margin percentage . 30% Given this information, when using the gross margin estimation method, ending inventory is approximately 9,000.

7.

Petersen Menswear, Inc. maintains a markup of 60 percent based on cost. The company's selling and administrative expenses average 30 percent of sales. Annual sales were P1,440,000. Petersen's cost of goods sold and operating profit for the year are (a) Cost of Goods Sold and (b) Operating Profit 900,000; 108,000

8.

On October 31, a flood at Payne Company's only warehouse caused severe damage to its entire inventory. Based on recent history, Payne has a gross profit of 25 percent of net sales. The following information is available from Payne's records for the ten months ended October 31: Inventory, January 1 ....... P 520,000 Purchases 4,120,000 Purchase returns .. 60,000 Sales .... 5,600,000 Sales discounts ... 400,000 A physical inventory disclosed usable damaged goods which Payne estimates can be sold for P70,000. Using the gross profit method, the estimated cost of goods sold for the ten months ended October 31 should be 3,900,000.

9.

The following information appears in Olsen Company's records for the year ended December 31: Inventory, January 1 ....... P 325,000 Purchases 1,150,000 Purchase returns .. 40,000 Freight-in ........ 30,000 Sales .... 1,700,000 Sales discounts ... 10,000 Sales returns ..... 15,000 On December 31, a physical inventory revealed that the ending inventory was only P210,000. Olsen's gross profit on net sales has remained constant at 30 percent in recent years. Olsen suspects that some inventory may have been pilfered by one of the company's employees. At December 31, what is the estimated cost of missing inventory? 82,500

10. Davis Company's accounting records indicated the following information: Inventory, 1/1/2020. 1,000,000 Purchases during 2020 ...... 5,000,000 Sales during 2020 . 6,400,000 A physical inventory taken on December 31, 2020, revealed actual ending inventory at cost was P1,150,000. Davis' gross profit on sales has regularly been about 25 percent in recent years. The company believes some inventory may have been stolen during the year. What is the estimated amount of missing inventory at December 31, 2020? 50,000 11. On June 19, 2020, a fire destroyed the entire uninsured merchandise inventory of the Allen Merchandising Company. The following data are available: Inventory, January 1 ....... P 80,000 Purchases, January 1 through June 19 560,000

Sales, January 1 through June 19 .... 776,000 Markup percentage on cost .. 25% What is the approximate inventory loss as a result of the fire? P19,200 12. The following information is available for Torino Corp. for its most recent year: Net sales P3,600,000 Freight-in ........ 90,000 Purchase discounts 50,000 Ending inventory .. 240,000 The gross margin is 40 percent of net sales. What is the cost of goods available for sale? 2,400,000 13. A company sells four products: I, II, III, and IV. The company values all inventories using the lower-of-cost-or-market procedure. The company has consistently experienced a profit margin of 20 percent of sales and expects this rate to hold for the future. Additional information, shown below, is available for the most recent year as of December 31. Original Cost to Estimated Cost Expected Selling Product Cost Replace to Sell Prices I P60 P70 P10 P100 II 70 90 20 120 III 80 60 10 60 IV 90 80 20 90 What is the reported inventory value at December 31 for one unit of each product? 60, 70, 50, 70 14. The following information is available for the Neptune Company for the three months ended March 31 of this year: Inventory, January 1 ....... P 450,000 Purchases 1,700,000 Freight-in ........ 100,000 Sales .... 2,400,000 The gross margin was estimated to be 25 percent of sales. What is the estimated inventory balance at March 31? 450,000 15. Elrond Company began operations in 2018. During the first two years of operations, Elrond made undiscovered errors in taking its year-end inventories that understated 2018 ending inventory by P40,000 and overstated 2019 ending inventory by P50,000. The combined effect of these errors on reported income for the year 2018, 2019, 2020, respectively is understated 40,000 overstated 90,000 understated 50,000 16. Jupiter Company prepares monthly income statements. A physical inventory is taken only at year-end; hence, month-end inventories must be estimated. All sales are made on account. The rate of markup on cost is 50 percent. The following information relates to the month of May: Accounts receivable, May 1 . P20,000 Accounts receivable, May 31 30,000 Collection of accounts receivable during May . 50,000 Inventory, May 1 .. 36,000 Purchases of inventory during May ... 32,000 The estimated cost of the May 31 inventory is 28,000. 17. Assume that a company records purchases net of discount. If the company bought merchandise valued at P10,000 on credit terms 3/15, net 30, the entry to record a payment for half of the purchase within the discount period would include a debit to Accounts Payable for 4,850 and a credit to Cash for 4,850. 18. On August 1, Stephan Company recorded purchases of inventory of P80,000 and P100,000 under credit terms of 2/15, net 30. The payment due on the P80,000 purchase was remitted on August 14. The payment due on the P100,000 purchase was remitted on August 29. Under the net method and the gross method, these purchases should be included at what respective net amounts in the determination of cost of goods available for sale? 176,400 and 178,400, respectively 19. Ami Retailers purchased merchandise with a list price of P100,000, subject to a trade discount of 20 percent and credit terms of 2/10, n/30. At what amount should Ami record the cost of this merchandise if the gross method is used? 80,000 20. Holdaway Co., a manufacturer, had inventories at the beginning and end of its current year as follows: Beginning End Raw materials .. P11,000 P15,000 Work in process 20,000 24,000 Finished goods . 12,500 9,000 During the year, the following costs and expenses were incurred: Raw materials purchased .... P150,000 Direct labor cost . 60,000 Indirect factory labor ..... 30,000 Taxes and depreciation on factory building ... 10,000 Taxes and depreciation on sales room and office ....... 7,500 Sales salaries .... 20,000 Office salaries ... 12,000 Utilities (60% applicable to factory, 20% to sales room, and 20% to office) 25,000 Holdaway's cost of goods sold for the year is 260,500 21. Barlow Company's Accounts Payable balance at December 31, 2020, was P1,800,000 before considering the following transactions: • Goods were in transit from a vendor to Barlow on December 31, 2020. The invoice price was P100,000, and the goods were shipped FOB shipping point on December 29, 2020. The goods were received on January 4, 2021. • Goods shipped to Barlow FOB shipping point on December 20, 2020, from a vendor were lost in transit. The invoice price was P50,000. On January 5, 2021, Barlow filed a P50,000 claim against the common carrier. In its December 31, 2020, balance sheet, Barlow should report Accounts Payable of 1,950,000. Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators during August is shown below: Balance/ Date Transaction Units Cost

August 1 Inventory 2,000 P36.00 7 Purchase 3,000 37.20 12 Sales 3,600 21 Purchase 4,800 38.00 22 Sales 3,800 29 Purchase 1,600 38.60 22. If Miller Inc. uses a FIFO periodic inventory system, the ending inventory of Model III calculators at August 31 is reported as 152,960. 23. If Miller Inc. uses a FIFO cost perpetual inventory system, the ending inventory of Model III calculators at August 31 is reported as 152,960. Stephens Inc. is a wholesaler of photography equipment. The activity for the VTC cameras during July follows: Balance/ Date Transaction Units Cost July 1 Inventory 2,000 P36.00 7 Purchase 3,000 37.00 12 Sales 3,600 21 Purchase 5,000 37.88 22 Sales 3,800 29 Purchase 1,600 38.11 24. If Stephens Inc. uses the average cost method to account for inventory, the ending inventory of VTC cameras at July 31 is reported as 156,912. 25. If Stephens Inc. uses a moving average perpetual inventory system, the ending inventory of the VTC cameras at July 31 is reported as 156,912. 26. Following are the account balances from Fulton Company's income statement: Inventory, January 1, 2020 . P30,000 Purchases 40,000 Purchase Returns and Allowances ..... 5,000 Purchase Discounts 4,000 Freight-In ........ 5,000 Inventory, December 31, 2020 ........ 15,000 Freight-Out ....... 6,000 Given this information, the cost of goods sold during 2020 is 51,000. Purchases and sales during a recent period for Coleman, Inc. were: Purchases During the Period Sales During the Period 1st Purchase 500 units @P2 1st Sale 600 units @P7 2nd Purchase 1,000 units @P3 2nd Sale 750 units @P8 3rd Purchase 500 units @P4 3rd Sale 500 units @P9 4th Purchase 500 units @P5 4th Sale 500 units @P10 2,500 units 2,350 units 27. Beginning inventory was 100 units at P1 each. Given this information, what is the ending inventory if the periodic FIFO costing alternative is used? 1,250 28. Given this information, what is the cost per unit available for sale during the year when using the average cost method (rounded to the nearest cent)? 3.31 29. The following information was taken from Frandsen Company's accounting records: Increase in raw materials inventory . P 7,500 Decrease in finished goods inventory 17,500 Raw materials purchase ..... 215,000 Direct-labor payroll ....... 100,000 Factory overhead .. 150,000 Freight-out ....... 22,500 There was no work-in-process inventory at the beginning or end of the year. Frandsen's cost of goods sold is 475,000. 30. The following information is available for Hudson Company: Disbursements for purchases P290,000 Increase in trade accounts payable .. 25,000 Decrease in merchandise inventory ... 10,000 Cost of goods sold was 325,000. The following data relate to the records of Powell Corp. for the month of September: Sales .... P160,000 Beginning inventory ........ P 20,000 Purchases 180,000 Goods available for sale ... P200,000 Using these data, estimate the cost of ending inventory for each situation below: 31. Markup is 60 percent on sales. 136,000 32. Markup is 25 percent on cost. 72,000 33. Northstar Sales Corp. was organized on January 1, 2019. On December 31, 2020, the company lost most of its inventory in a warehouse fire just before the year-end count of inventory was to take place. Data from the records disclosed the following: 2019 2020 Inventory, January 1 ..... P 0 P173,120 Purchases during year .... 860,000 692,000 Purchase returns and allowances during year 46,120 64,600 Sales during year ........ 788,000 836,000 Sales returns and allowances during year ... 16,000 20,000 On January 1, 2020, Northstar's pricing policy was changed so that the gross profit rate would be 3 percentage points higher than the one earned in 2019. Salvaged undamaged merchandise was marked to sell at P24,000, while damaged merchandise marked to sell at P16,000 had an estimated net realizable value of P3,600. Determine the company's inventory loss due to the fire that occurred on December 31, 2020. Compute the inventory loss due to fire. 124,920

34. On May 17, it was discovered that a material amount of inventory had been stolen. A physical count discloses that P55,000 of merchandise was on hand as of May 17. The following additional data is available from the accounting records: Inventory, January 1 ........ P 62,000 Purchases, January 1 - May 17 (includes P4,000 shipped FOB shipping point May 16, received May 19) 114,000 Sales (goods delivered to customers), January 1 - May 17 90,000 Records indicate that the company's gross profit has averaged 40 percent of selling prices. Estimate the amount of loss due to theft. 63,000 35. The Steelers Company had its entire inventory destroyed when a fire swept through the company's warehouse. Fortunately, the accounting records were locked in a fireproof safe and were not damaged. The following information for the period up to the date of the fire was taken from the accounting records: Sales .... P486,400 Purchases 295,000 Beginning inventory ........ 147,800 Purchase returns .. 16,600 Freight-in ........ 8,200 Assuming that the markup percentage on cost is 28 percent, what is the estimated value of the inventory destroyed in the fire? 54,400 36. Presented below is information related to Carpenter Inc. Cost Retail Inventory, 12/31/20 P375,000 P 550,000 Purchases 1,369,000 2,050,000 Purchase returns 90,000 120,000 Purchase discounts 27,000 – Gross sales (after employee discounts) – 2,110,000 Sales returns – 145,000 Markups – 180,000 Markup cancellations – 60,000 Markdowns – 65,000 Markdown cancellations 30,000 Freight-in 63,000 – Employee discounts granted – 12,000 Loss from breakage (normal) – 8,000 Assuming that carpenter Inc. uses the conventional retail inventory method, compute the cost of its ending inventory at December 31, 2021. 377,000 37. When you undertook the preparation of the financial statements for Telfer Company at January 31, 2021, the following data were available: At Cost At Retail Inventory, February 1, 2020 P70,800 P 98,500 Markdowns 35,000 Markups 63,000 Markdown cancellations 20,000 Markup cancellations 10,000 Purchases 219,500 294,000 Sales 345,000 Purchases returns and allowances 4,300 5,500 Sales returns and allowances 10,000 Compute the ending inventory at cost as of January 31, 2021, using the retail method which approximates lower of cost or net realizable value. 58,500 38. Utley Co. prepares monthly income statements. Inventory is counted only at year end; thus, month-end inventories must be estimated. All sales are made on account. The rate of mark-up on cost is 20%. The following information relates to the month of May. Accounts receivable, May 1 P21,000 Accounts receivable, May 31 27,000 Collections of accounts during May 90,000 Inventory, May 1 45,000 Purchases during May 58,000 Calculate the estimated cost of the inventory on May 31. 23,000 39. On January 1, a store had inventory of P48,000. January purchases were P46,000 and January sales were P90,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit was 25% of cost. Merchandise with a selling price of P5,000 remained undamaged after the fire. Compute the amount of the fire loss, assuming the store had no insurance coverage. 18,000 40. Doran Realty Company purchased a plot of ground for P800,000 and spent P2,100,000 in developing it for building lots. The lots were classified into Highland (20 lots), Midland (40 lots), and Lowland grades (100 lots), to sell at P100,000, P75,000, and P50,000 each, respectively. Determine the cost of each lot under each category. 29,000; 21,750; 14,500 41. Dover Company began operations in 2020 and determined its ending inventory at cost and at a LCNRV at December 31, 2020, and December 31, 2021. This information is presented below. Cost Net Realizable Value 12/31/15

P520,000

P485,000

12/31/16 615,000 585,000 Prepare the journal entries required at December 31, 2020, and December 31, 2021, assuming that the inventory is recorded at LCNRV, using a perpetual inventory system and the cost-of-goods-sold method. 2015 COGS/ Cr. AIWD 35T; 2016 AIWD Cr. COGS 5T FOR THE NEXT 3 REQUIREMENTS: Nolan's Hardware Store prepared the following analysis of cost of goods sold for the previous three years:

2017 2018 2019 Beginning inventory 1/1 P40,000 P18,000 P25,000 Cost of goods purchased 50,000 55,000 70,000 Cost of goods available for sale 90,000 73,000 95,000 Ending inventory 12/31 18,000 25,000 40,000 Cost of goods sold P72,000 P48,000 P55,000 Net income for the years 2017, 2018, and 2019 was P70,000, P60,000, and P55,000, respectively. Since net income was consistently declining, Mr. Nolan hired a new accountant to investigate the cause(s) for the declines. The accountant determined the following:  Purchases of P25,000 were not recorded in 2017.  The 2017 December 31 inventory should have been P24,000.  The 2018 ending inventory included inventory costing P5,000 that was purchased FOB destination and in transit at year-end.  The 2019 ending inventory did not include goods costing P4,000 that were shipped on December 29 to Sampson plumbing Company, FOB shipping point. The goods were still in transit at the end of the year. Determine the correct net income for the year 42. 2017 51,000 43. 2018 44,000 44. 2019 60,000 USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: During 2019, the first of operations, ABC Company purchased the following equity securities: Cost FMV (12-31-19) FMV (12-31-20) Security 1 2,200,000 1,400,000 1,800,000 Security 2 700,000 1,000,000 550,000 Security 3 1,600,000 1,500,000 800,000 Security 4 2,000,000 2,500,000 2,400,000 Security 1 and 2 are held for trading while 3 and 4 are measured at fair value through other comprehensive income by election. During 2020, the entity sold half of Security 2 for P600,000 and half of Security 3 for P950,000. 45. Determine the gain/ loss of sale for 2020. 100,000 gain 46. If ABC is to prepare statement of profit or loss for 2020, how much is the impact associated with these securities? 550,000 increase USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: ABC acquired 4,000, P1000 face amount, 10% bonds of XYZ, on October 1, 2019 for P4,400,000 which included P100,000 accrued interest. The bonds, which mature on January 1, 2026, pay interest semiannually on January 1 and July 1. The entity used the straightline method of amortization and appropriately recorded the bonds as financial asset at amortized cost. 47. The initial amount of investment in bonds is 4,300,000 48. Interest income for 2019 is 88,000 49. Carrying value of the investment as of December 31, 2020, is. 4,240,000 USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: On January 1, 2019, BAC 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 assets at amortized cost with a 10% effective yield. The bonds mature at an annual installment of P1,000,000 every December 31. Use 2-decimal present value factor. 50. Compute the market price of the bonds. 3, 106, 800 51. Determine the carrying value of the bond investment on December 31, 2019. 2,057,480 USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: On January 1, 2019, ABC purchased bonds with face amount of P4M for P4,206,000. The business model of the entity in managing the financial asset is to collect contractual cash flows that are solely payment of principal and interest and also to sell the bonds in the open market. The entity has not elected the fair value option of measuring financial asset. The bonds mature on December 31, 2021 and pay 10% interest annually on December 31, each year with 8% effective yield. The bonds are quoted at 95 on December 31, 2019 and 90 on December 31, 2020. 52. What amount of cumulative unrealized loss should be reported in the statement of changes in equity on December 31, 2020? 473,878 53. What is the carrying amount of the bond investment to be reported on December 31, 2020? 3,600,000 USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: On January 1, 2019, ABC purchased 12% bonds with face amount of P5M for P5.5M including transaction cost of P100,000. The bonds provided an effective yield of 10%. The bonds are date January 1, 2019 and pay interest annually on December 31 each year. The bonds are quoted at P115 on December 31, 2019. The entity has irrevocably elected to use the fair value option. 54. What amount of gain from change in fair value should be reported for 2019? 350,000 55. What is the interest income for 2019? 600,000 USE THE FOLLOWING INFORMATION FOR THE NEXT FEW REQUIREMENTS: On January 1, 2019 ABC purchase bonds with face amount of P5M. the entity paid P4.5M plus transaction cost of P168,600. The bonds mature on December 31, 2022 and pay 6% interest annually on December 31 of each year with 8% effective yield. The bonds are quoted at 105 on December 31, 2019 and 110 on December 31, 2020. The business model in managing the financial asset is to collect contractual cash flow and also to sell the bonds in the open market. The entity has not elected the fair value option. On December 3,1 2020, the entity changed the business model to collect only contractual cash flows. On December 31, 2021, the bonds are quoted at 115 and the market rate of interest is 10%. 56. The initial amount of the bonds is 4,668,600 57. Compute the cumulative unrealized gain/ loss as of the year ended 2020. 678,545 58. The amount of gain or loss on remeasurement date is 0

59. Swanson Inc. purchased P400,000 of Malone Corp. ten-year bonds with a stated interest rate of 8 percent payable quarterly. At the time the bonds were purchased, the market interest rate was 12 percent. Determine the amount of premium or discount on the purchase of the bonds. P92,442 discount 60. On October 1, 2019, ABC Company purchases two quoted securities from the open market, The details of the purchases are as follows: Price Commission a. 1,000,000 ordinary shares of P Company P2,000,000 P 10,000 b. 1,000,000 bonds of R Company 800,000 5,000 ABC Company intends to trade these investments and will sell them when their market prices increase by about 10% or more. On December 31, 2019, the quoted market price of P Company ordinary shares is P2.08 and the market price of the bonds of R Company closes at P0.78 per unit. What is the net amount of unrealized gain or loss that should be reported in the statement of comprehensive income for the year ended December 31, 2019? P60,000