NAME: SECTION:

ACC 106: PRE - FINALS EXAM

INSTRUCTION: Choose the best answer. Reflect your answers in scantron answer sheet.

1. Inventories are assets that are:

a. Held for sale in the ordinary course of business

b. In the process of production for such sale
c. In the form of materials or supplies for sale
d. used in the process of production in manufacturing type of business.

2. Which of the following costs are included in the cost of inventories?

a. Transport costs for raw materials

b. Abnormal material usage
c. Storage costs relating to finished goods
d. Administrative and general overhead

3. How should trade discounts be dealt with when valuing inventories at the lower of cost and net realizable value (NRV)
according to PAS 2?

a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

4. The cost of inventory shall be measured using

a. FIFO c. LIFO
b. Average method d. Either FIFO or average method

5. Net realizable value is

a. Current replacement cost
c. Estimated selling price
b. Estimated selling price less estimated cost to complete
d. Estimated selling price less estimated cost to complete and estimated cost to sell

6. Goods in transit that are shipped f.o.b. destination should be

a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these.

7. Cross Co. accepted delivery of merchandise which it purchased on account. As of December 31, Cross had recorded the
transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31
would be
a. net income, current assets, and retained earnings were understated.
b. net income was correct and current assets were understated.
c. net income was understated and current liabilities were overstated.
d. net income was overstated and current assets were understated.

8. All of the following costs should be expensed in the period they are incurred except for
a. manufacturing overhead costs for a product manufactured and sold in the same accounting period.
b. costs which will not benefit any future period.
c. depreciation of idle manufacturing capacity resulting from an unexpected plant shutdown.
d. storage costs that are necessary in bringing the asset to its intended condition.
9. Which of the following cost flow formulas can be applied by an entity whose inventories that are purchased last are sold first?
a. LIFO c. Weighted average cost
b. FIFO d. b or c

10. The following information was derived from the 2004 accounting records of Kelly Co.:

Kelly`s 2004 cost of sales was

a. ₱940,000.
b. ₱1,000,000.
c. ₱1,068,000.
d. ₱1,078,000.

11. Dial Corp.`s accounts payable at December 31, 2004 totaled ₱800,000 before any necessary year-end adjustments relating to
the following transactions:
 On December 27, 2004, Dial wrote and recorded checks to creditors totaling ₱350,000 causing an overdraft of
₱100,000 in Dial`s bank account at December 31, 2004. The checks were mailed out on January 10, 2005.
 On December 28, 2004, Dial purchased and received goods for ₱200,000, terms 2/10, n/30. Dial records purchases
and accounts payable at net amounts. The invoice was recorded and paid January 3, 2005.
 Goods shipped f.o.b. destination on December 20, 2004 from a vendor to Dial were received January 2, 2005. The
invoice cost was ₱65,000.

At December 31, 2004, what amount should Dial report as total accounts payable?
a. ₱1,411,000.
b. ₱1,346,000.
c. ₱1,050,000.
d. ₱1,000,000.

12. Gear Co.`s accounts payable balance at December 31, 2004 was ₱1,100,000 before considering the following transactions:
 Goods were in transit from a vendor to Gear on December 31, 2004. The invoice price was ₱80,000, and the goods
were shipped f.o.b. shipping point on December 29, 2004. The goods were received on January 4, 2005.
 Goods shipped to Gear, f.o.b. shipping point on December 20, 2004, from a vendor were lost in transit. The invoice
price was ₱50,000. On January 5, 2005, Gear filed a ₱50,000 claim against the common carrier.

In its December 31, 2004 balance sheet, Gear should report accounts payable of
a. ₱1,230,000.
b. ₱1,180,000.
c. ₱1,150,000.
d. ₱1,100,000.

13. When using the periodic inventory system, 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 purchased during the period

14. Goods out on consignment are

a. included in the consignee`s inventory.
b. recorded in a Consignment Out account which is an inventory account.
c. recorded in a Consignment In account which is an inventory account.
d. all of these
15. Miller Company needs an estimate of its ending inventory balance. The following information is available:

Cost Retail
Sales revenue ............................. ₱180,000
Beginning inventory ....................... ₱ 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
a. ₱1,000.
b. ₱9,000.
c. ₱19,000.
d. ₱11,650.

16. 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 ........ ₱1,200,000
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?
a. ₱880,000
b. ₱933,000
c. ₱1,200,000
d. ₱1,500,000

17. 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 ₱1,440,000. Petersen`s cost of goods sold and operating profit for the
year are
Cost of Goods Sold Operating Profit
a. ₱864,000 ₱144,000
b. ₱864,000 ₱432,000
c. ₱900,000 ₱108,000
d. ₱900,000 ₱432,000

18. 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 .................................. ₱ 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 ₱70,000. Using the gross profit
method, the estimated cost of goods sold for the ten months ended October 31 should be
a. ₱680,000.
b. ₱3,830,000.
c. ₱3,900,000.
d. ₱4,200,000.

19. Changes in fair value are recognized in profit or loss for which type of financial assets?
a. Financial assets measured at amortized cost
b. FVOCI securities
c. Held to maturity debt securities
d. Financial assets designated at FVPL
20. Which securities are purchased with the intent of selling them in the near future?
a. Financial assets measured at amortized cost
b. FVOCI securities
c. Held for trading securities
d. Held-for-sale securities

21. How much is the ending inventory under the Average cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400
22. How much is the ending inventory under the FIFO cost method?
a. 60,750
b. 60,000
c. 61,050
d. 62,400

23. What is the appropriate treatment for receivable pledging transactions?

a. Note disclosure only.
b. Accounted for by segregating the pledged receivables from the other receivables through a journal
entry.
c. They need not be disclosed if the related loan does not require any collateral security.
d. A and B

24. What is the appropriate treatment for receivable assignment transactions?

a. Note disclosure only.
b. Accounted for by segregating the assigned receivables from the other receivables through a journal
entry.
c. Give rise to receivables from factor.
d. B and C

Use the ff info for the next 3 questions:

On December 1, 2023, an entity assigned on non-notification basis specific accounts receivable totaling
P4,000,000 as collateral on a P3,000,000, 12% loan from a certain bank. In addition to the interest on the
loan, the bank also charged a 5% finance fee deducted in advance on the P3,000,000 loan evidenced by
a promissory note.
The December collections of assigned accounts receivable amounted to P2,000,000 less cash discounts
of P100,000. On December 31, 2023, the entity remitted the collections to the bank in payment for the
interest accrued on December 31, 2023 and the balance for the payment of the note payable. The entity
accepted sales returns of P150,000 on the assigned accounts and wrote off assigned accounts of P200,000.

25. What amount of cash was received from the assignment on December 31, 2023?
a. 3,850,000
b. 3,000,000
c. 3,800,000
d. 2,850,000

26. What is the carrying amount of note payable on December 31, 2023?
a. 1,000,000
b. 1,100,000
c. 1,130,000
d. 1,460,000

27. What is the balance of accounts receivable – assigned on December 31, 2023?
a. 2,100,000
b. 2,000,000
c. 1,650,000
d. 1,850,000

28. When using a perpetual inventory system,

a. no Purchases account is used.
b. a Cost of Goods Sold account is used.
c. two entries are required to record a sale.
d. all of these.

Use the following information for the next two questions:

Transactions for the month of June were:

Purchases Sales

June 1
(balance) 1,200 @ ₱3.20 June 2 900 @ ₱5.50

3 3,300 @ 3.10 6 2,400 @ 5.50

7 1,800 @ 3.30 9 1,500 @ 5.50

15 2,700 @ 3.40 10 600 @ 6.00

22 750 @ 3.50 18 2,100 @ 6.00

25 450 6.00

29. Assuming that perpetual inventory records are kept in pesos, the ending inventory on a FIFO basis is
a. ₱5,700. b. ₱5,760. c. ₱6,195. d. ₱6,300.

30. Assuming that perpetual inventory records are kept in units only, the ending inventory on an average-cost
basis, rounded to the nearest dollar, is
a. ₱5,940. b. ₱5,868. c. ₱5,910. d. ₱5,985.
Use the following information for the next three questions:

On January 1, 2022, Clert Company purchased 2,500 ordinary shares of Alexa Corporation at ₱210 per share plus
transaction costs of ₱5,250. These shares are acquired for trading purposes. On December 31, 2022, the ordinary
shares of Alexa Corporation are quoted at ₱244 per share.

On February 14, 2023, Clert Company sold 750 shares of Alexa Corporation ordinary shares at ₱252 per
share. Clert Company incurred transaction costs amounting to ₱2,840 in relation to sale. On December 31, 2023,
the ordinary shares of Alexa Corporation are quoted at ₱274 per share.

31. At what amount shall Clert Company initially recognize its investment in Alexa Corporation ordinary shares
on January 1, 2022?

A. 519,750 C. 530, 250

B. 525,000 D. 610,000

32. At what amount shall Clert Company report its investment in Alexa Corporation ordinary shares on
December 31, 2022?

A. 519,750 C. 530, 250

B. 525,000 D. 610,000

33. What amount of unrealized gain (loss) on fair value change shall be reported in profit or loss for 2022?

A. 79,750 C. 85,000
B. (79,750) D. (85,000)

Use the following information for the next two questions:

On January 1, 2022, Patrick Company purchased 2,500 ordinary shares of Kent Corporation at ₱210 per share plus transaction
costs of ₱5,250. These shares represent nominal ownership interest and are not intended for trading purposes. The company
made an irrevocable decision to designate these non-trading securities at fair value through other comprehensive income. On
December 31, 2022, the ordinary shares of Kent Corporation are quoted at ₱244 per share.

On February 14, 2023, Patrick Company sold 750 shares of Kent Corporation ordinary shares at ₱252 per share. On
December 31, 2023, the ordinary shares of Kent Corporation are quoted at ₱274 per share.

34. At what amount shall Patrick Company initially recognize its investment in Kent Corporation ordinary shares on January 1,
2022?

A. 519,750 C. 530, 250

B. 525,000 D. 610,000

35. At what amount shall Vince Company report its investment in Kent Corporation ordinary shares on December 31, 2022?

A. 519,750 C. 530, 250

B.525,000 D. 610,000

“We want each of you to show this same diligence to the very end, so that what you
hope for may be fully realized.” (Hebrews 6:11)
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