Centor Escolar University Financial Accounting and Reporting Quiz 2

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CENTOR ESCOLAR UNIVERSITY

FINANCIAL ACCOUNTING AND REPORTING


QUIZ 2
(ACCOUNTING FOR INVENTORIES AND EQUITY INVESTMENTS AT FAIR VALUE)

Instruction: Select the letter of the best answer for theories and compute the
required in problem solving. Goodluck!

Part 1 – Theories:
1. Statement 1: The cost flow assumption adopted must be consistent with the physical
movement of the goods.
Statement 2: The inventory cost on its statement of financial position was lower using
first-in, first-out than it would have been using average cost. There is no beginning
inventory, therefore, the cost of purchases moved downward during the period.
A. Only statement 1 is correct.
B. Only statement 2 is correct.
C. Both statements are correct.
D. Neither of the statements is correct.

2. Identify the cost formula that is described in the following statements:


Statement 1: The cost formula in which the oldest cost incurred rarely have an effect
on the ending inventory valuation.
Statement 2: The cost formula in which the cost of each item is determined from
weighted average of the cost of similar items at the beginning of each period and the
cost of similar items purchased or produced during the period.
A. Specific Identification, Weighted Average
B. FIFO, Weighted Average
C. Specific Identification, Moving Average
D. FIFO, Moving Average

3. Which of the following items would be included in the inventory account of a


manufacturing concern?
I. Goods in transit purchased FOB shipping point, invoice received
II. Goods out on approval by a customer
III. Goods sold under FAS, at the port designated by the buyer
IV. Goods in the hands of traveling salesmen
V. Goods completed, manufactured to customer’s specification, awaiting instruction for
delivery by the customer
VI. Goods which require additional processing
A. I, II, IV, V, VI
B. I, II, IV, VI
C. I, III, IV, VI
D. I, IV, VI

4. The account title “Inventories” as shown on an entities financial statements include


a. Goods sold with a buyback arrangement
b. Goods held on consignment
c. Unused supplies for administrative purposes
d. Goods in transit, purchased FOB buyer

5. Evaluate whether each of the following two statements is true or false.


I. The retail inventory method is allowed for external reporting purposes as an
alternative method to measure the cost of inventory.
II. The gross profit method may be used to measure inventory and related expense
for interim reporting purposes, but not for annual reporting purposes.
a. True, true
b. True, false
c. False, true
d. False, false
6. Costs that are incurred in bringing the inventories to their present location and
condition are capitalizable as cost of inventories and these include
A. cost of designing products for specific customers
B. abnormal amount of wasted material, labor and production cost
C. storage cost not necessary in the production process before a further production
stage
D. selling costs

7. The difference in the calculation of the cost-to-retail percentage applying the


conventional retail method and the average cost method is that the average cost method
A. Beginning inventory is deducted
B. Markups are added
C. Markdowns are deducted
D. Markdowns are added

8. If a company uses the periodic inventory system, what is the impact on net income of
including goods in transit F.O.B. shipping point in purchases, but not ending
inventory?
A. Overstate net income.
B. No effect on net income.
C. Understate net income.
D. Not sufficient information to determine the effect

9.Equity investments acquired by a corporation which are accounted for by recognizing


unrealized holding gains or losses as other comprehensive income and as a separate
component of equity most likely are
a. non-trading where a company has holdings of less than 20%.
b. trading investments where a company has holdings of less than 20%.
c. Investments where a company has holdings of between 20% and 50%.
d. investments where a company has holdings of more than 50%.

10. Susan Corporation declares and distributes a cash dividend that is a result of
current earnings. How will the receipt of those dividends affect the investment account
of the investor under each of the following accounting methods?
Fair Value Method Equity Method
a. No Effect Decrease
b. Increase Decrease
c. No Effect No Effect
d. Decrease No Effect

11. All of the following statements regarding accounting for investment at fair value is
correct?
a. they should be recognized in the financial statements as assets and liabilities.
b. they should be reported at fair value.
c. gains and losses resulting from speculation should be deferred.
d. gains and losses resulting from hedge transactions are reported in different ways,
depending upon the type of hedge.

12. Gains or losses on changes in fair value of equity investment classified at FVTOCI:
a. ignored completely.
b. recorded in equity, as part of other comprehensive income.
c. reported directly in net income.
d. reported directly in retained earnings.

13. A debit balance in UGOL at FVTOCI at the end of the year should be interpreted as
a. the net realized holding gain to date
b. the net unrealized holding loss to date
c. the net realized holding gain for that year
d. the net unrealized holding loss for that year

14. For which type of investments would unrealized holding gain or loss be recorded
directly in an owner’s equity account?
a. Investment in associates
b. Equity investment at fair value through OCI
c. Equity investment at fair value through P&L
d. Debt investment at amortized cost

15. If the combined market value of equity investment at fair value through profit or
loss at the end of the year is more than the market value of the same portfolio of
trading securities at the beginning of the year, the difference should be accounted for
by:
a. reporting an unrealized loss in security investment in the stockholders’ equity
section of the balance sheet
b. reporting an unrealized loss in security investments in the income statement
c. reporting an unrealized gain in security investments in the income statement
d. a footnote to the financial statements
e. a debit to equity investment

Part 2 – Problem Solving:


Situation 1 – The data relates to three different Companies:
The Rodelio Company conducted a physical count of inventory on December 31, 2023, with a
cost of P3,370,000. The following items were included from the physical count:
Goods held by Rodelio on consignment P420,000
Goods shipped by a vendor FOB Destination on December 31, 2023 and was
received by Rodelio on January 5, 2024. 850,000
Goods purchased FOB Shipping Point was shipped by the supplier on December
31, 2023 and received by Rodelio on January 4, 2024. 770,000
Cost of goods shipped by Rodelio FOB Destination to a customer on December
31, 2023 and was received by the customer on January 2, 2024. 370,000
Cost of goods shipped by Rodelio FOB Shipping Point to a customer on
December 31, 2023 and was received by the customer on January 5, 2024. 590,000
Cost of goods shipped by Rodelio to a customer on December 31, 2023 on an
installments agreement (Rodelio Company believed that the collectability of
the installment is reasonably assured) 340,000

The Charlize Manufacturing Company inventory list at December 31, 2023 shows a total of
P1,880,000. Included in such list are the following items: goods held on consignment
P180,000 at cost; goods tagged awaiting customer’s instructions for delivery (manufactured
according to customer’s specifications) P200,000 cost, unused store supplies P50,000, and
goods sold with buyback arrangement at cost of 150,000. The following in transit goods
were excluded from the list (all at cost): goods sold FOB shipping point P40,000; goods
sold FOB destination, P32,000, goods purchased FOB shipping point P70,000, and goods
purchased, FOB destination, P90,000.

You were retained by Jazter Corporation on April 1, 2023 to estimate the inventory
destroyed in a recent fire. The company’s markup on sales is 35%. The following
information is obtained from available records: Inventory, January 1, P700,000; Gross
purchases from January 1 to March 31 were P1,500,000, freight-in, P50,000, purchase
returns and allowances, P20,000. Gross sales for the same period were P2,280,000, sales
returns were P40,000, sales discounts were P15,000, and discounts granted to employees
amounted to P57,000. Damaged goods were salvage at P120,000. Cost of goods purchased in
transit, P54,000.

16.What amount should Rodelio Company report as inventory as of December 31, 2023?
a. P2,810,000 b. P2,200,000 c. P1,830,000 d. P1,170,000

17.How much is the cost of Charlize Manufacturing Company’s inventory at December 31,
2023?
a. P1,432,000 b. P1,552,000 c. P1,562,000 d. P1,632,000

18.How much is the estimated cost of inventory fire loss of Jazter Corporation?
a. P600,000 b. P586,250 c. P572,700 d. P562,950

Situation 2 – The data relates to two different Companies:


The operations of a department of Caley Company that uses FIFO retail inventory method are
presented below: (Use two decimal places for CTR)
Beginning inventory-sales price 3,000,000
Beginning inventory-cost 1,500,000
Purchases-cost 3,600,000
Purchases-sales price 5,000,000
Freight-in 199,300
Departmental transfer-in - cost 200,000
Departmental transfer-in - sales price 400,000
Net Markup 180,000
Net Markdown 100,000
Sales 4,000,000
Employee discount 180,000
Sales returns 50,000
Abnormal loss from breakage-sales price 70,000
Abnormal loss from breakage-cost 50,000
Normal loss from breakage 110,000

19.How much is the estimated cost of ending inventory of Caley Company?


a. P2,701,972 b. P3,002,200 c. P3,044,100 d. P3,124,400

20.How much is the estimated cost of ending inventory of Caley Company if average method
is used?
a. P2,701,972 b. P3,002,200 c. P3,044,100 d. P3,124,400

Ron Jullus Inc. is a wholesaler of office supplies. The activity for Model V calculators
during August is shown below:
Date Balance/Transaction Units Cost
Aug. 1 Inventory 2,000 P35.00
7 Purchase 3,000 38.00
12 Sales 3,600
21 Purchase 4,800 40.00
22 Sales 3,800
29 Purchase 1,600 44.00

Ron Jullus Inc. uses periodic inventory records and that said records are kept in units
only.

21.The cost of ending inventory of Model V calculators using the average method at August
31, should be reported by Ron Jullus Inc’s at:
a. P155,520 b. P156,640 c. P157,120 d. P166,400

22.The cost of ending inventory of Model V calculators using the FiFo - periodic method at
August 31, should be reported by Ron Jullus Inc’s at:
a. P155,520 b. P156,640 c. P157,120 d. P166,400

Situation 3 – The data relates to two different Companies:


The following information relate to an item of raw materials of Dragon Empire Company as
of June 30, 2023:
Replacement cost of raw materials P680,000
Historical cost of raw materials 700,000
Conversion cost 250,000

23.How much is the value of the closing raw materials if the finished product to be
produced is expected to be sold at P1,150,000?
a. P680,000 b. P700,000 c. P950,000 d. P1,150,000

24.How much is the value of the closing raw material if the finished product to be
produced is expected to be sold at P880,000?
a. P680,000 b. P700,000 c. P950,000 d. P1,150,000
The December 31, 2023 inventory of Jaret Company consisted of three product categories,
for which the following information is provided:
Product Number of Estimated SP Estimated CTS Cost per Unit
Units per unit per unit
1 1,200 P35 8.00 P29
2 2,500 48 12.00 40
3 3,000 190 55.00 120

25.What is the amount of inventory reported in Jaret Company’s statement of financial


position as of December 31, 2023?
a. P496,500 b. P495,300 c. P494,800 d. P482,400

26.What is the amount of loss on inventory write down in 2023?


a. P16,500 b. P15,300 c. P12,400 d. P0

Situation 4 – The data relates to two different Companies:


Valentine Company began business in January of 2023. During the year, Valentine purchased
a portfolio of securities listed below. The composition of the securities did not change
during the year 2023. Pertinent data are as follows:
Transaction cost
Equity Shares paid FV 1/1/2023 FV 12/31/23 FV 12/31/24
HA (FVTPL) 15,000 P30,000 P3,450,000 P242 P240
HE (FVTPL) 25,000 75,000 3,750,000 165 160
BA (FVTOCI) 30,000 60,000 4,500,000 145 157
BE (FVTOCI) 45,000 112,000 4,905,000 103 121

27.How much is the amount of equity investment at FV through profit or loss should
Valentine Company report in its Statement of Financial Position as of December 31, 2024?
a. P7,000,000 b. P7,600,000 c. P10,155,000 d. P14,865,000

28.How much is the amount of equity investment at FV through other comprehensive income
should Valentine Company report in its Statement of Financial Position as of December 31,
2024?
a. P7,000,000 b. P7,600,000 c. P10,155,000 d. P14,865,000

29.How much is the amount of unrealized gain (loss) in its statement of financial position
as of December 31, 2024?
a. P542,000 b. P553,000 c. P569,000 d. P578,000

On February 1, 2023, NoDate Corporation purchased 60,000 shares of Chocolate Company’s


shares for P10 per share. The shares were designated as equity investments at FVTPL.
NoDate paid P2 per share transaction cost on acquisition. On December 31, 2023, Chocolate
declared and paid dividends of P6 per share and the shares on this date is traded at P15
per share. On April 30, 2024, 45,000 shares were sold when the prevailing market price of
the shares was at P16.50.

30.How much gain (loss) on sale should NoDate Corporation report in profit or loss in
2024?
a. P67,500 b. P90,000 c. P112,500 d. P0

31.Assuming that the share were originally designated as equity investment at FVTOCI, how
much gain (loss) on sale should NoDate report in the 2024 statement of comprehensive
income?
a. P67,500 b. P90,000 c. P112,500 d. P0

Situation 5 – The data relates to Flower Company:


Flower Company has the following portfolio of equity securities during 2023:
Initial Additional Feb. July Sept. FV
Equity shares shares dividends Dividends dividends 12/31/23
Security Love 40,000 10,000 P2.50 P1.50 P3.00 P30.00
Security Kaba 50,000 15,000 3.00 2.00 2.00 27.00

Security Love – Designated at FVTPL, additional shares were purchased on April 1, 2023.
Security Kaba – Designated at FVTOCI, additional shares were purchased on August, 30,
2023.

32.How much should Flower Company report as total investment income in 2023?
a. P485,000 b. P565,000 c. P675,000 d. P705,000

33.How much should Flower Company report the investments in its statement of financial
position as of December 31, 2023?
a. P3,000,000 b. P3,095,000 c. P3,125,000 d. P3,255,000

Situation 6 – The data relates to Summit Company:


Summit Company had the following portfolio of financial instrument as of December 31,
2023. All securities were acquired at the end of 2022:
Security Denomination Initial recorded value
Pagibig shares 150,000 shares P9,750,000
Alone shares 20,000 shares 900,000

[1].Pagibig shares were acquired and designated as financial asset at fair value through
profit or loss. The shares were acquired at P65 per share which included P1.50 per share
transaction cost. Half of the Pagibig shares were sold at P70 per share on August 31,
2024.
[2].The Alone shares were acquired and designated at FVTOCI. Alone shares was recorded at
its fair value at the time of purchase.
[3].Additional information on the securities are as follows:
Security FV 12/31/23 FV 12/31/24
Pagibig shares P61.50 per share P62 per share
Alone shares 45.00 per share 40 per share

34.How much is the realized gain or loss on sale of Pagibig shares in 2024?
a. P487,500 b. P637,500 c. P727,500 d. P757,500

35.How much is the amount of investments reported at fair value through profit or loss at
the end of 2024?
a. P800,000 b. P4,650,000 c. P5,450,000 d. P5,630,000

36.How much is the amount of investments reported at fair value through other
comprehensive income at the end of 2024?
a. P800,000 b. P4,4650,000 c. P5,450,000 d. P5,630,000

*** end of QUIZ 2***

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