You correctly answered 23 out of 30 questions with an accuracy of 76.67%.

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Question 1
An entity is a large manufacturer of machines. A major customer has placed an order for
a special machine for which it has given a deposit to the entity. The parties have agreed
on a price for the machine. As per the terms of the sale agreement, it is FOB or free on
board contract and the title passes to the buyer when goods are loaded into the ship at
the port. When should the revenue be recognized by the entity?
When the machine is loaded at the port
When the machine has been received by
the customer

When the costumer orders the machine

When the deposit is

received
Theory of Accounts - Inventory Valuation (Average)

Question 2
Which of the following inventories carried by a manufacturer is similar to the
merchandise inventory of a retailer?
Raw materials
Finished goods

Supplies

Work-in-process

Theory of Accounts - Inventory Valuation (Average)

Question 3
Under PAS 2, commodities of broker-traders are measured at
Fair value
Cost
Net realizable value
Fair value less cost to sell
Theory of Accounts - Inventory Valuation (Average)

Question 4

If the beginning inventory for 2016 is overstated, the effects of this error on cost of
goods sold for 2016, net income for 2016, and assets at December 31, 2015,
respectively, are
understatement, overstatement, no effect
overstatement

overstatement, understatement,

overstatement, understatement, no effect

understatement,

overstatement, overstatement
Theory of Accounts - Inventory Valuation (Average)

Question 5
Goods on consignment shall be included in the inventory of
The consignor but not the consignee
Both the consignor and the consignee
The consignee but not the consignor

Neither the consignor nor the consignee

Theory of Accounts - Inventory Valuation (Average)

Question 6
For a merchandising company, inventory shall exclude
Transportation and handling costs
Import duties and other taxes
price

Purchase

Trade discounts and rebates

Theory of Accounts - Inventory Valuation (Average)

Question 7
An entity should include one of the following items in its merchandise inventory.
Good purchased FOB shipping point still en route
Goods purchased FOB
destination still en route

Goods sold FOB shipping point still en route

for pick up by the buyer

Theory of Accounts - Inventory Valuation (Average)

Goods held

Question 8
The use of a Discounts Lost account implies that the recorded cost of a purchased
inventory item is its
invoice price less the purchase discount taken
discount allowable whether taken or not

invoice price less the purchase

invoice price plus the purchase discount lost

invoice price
Theory of Accounts - Inventory Valuation (Average)

Question 9
RS Corporation, a manufacturer of ethnic foods, contracted in 2016 to purchase 500
pounds of a spice mixture at P5.00 per pound, delivery to be made in spring of 2015. By
12/31/10, the price per pound of the spice mixture had risen to P5.60 per pound. In
2016, AJ should recognize
a gain of P300
no gain or loss

a loss of P2,500

a loss of P300

Theory of Accounts - Inventory Valuation (Average)

Question 10
The accountant for the Cooperative Sales Company is preparing the income statement
for 2016 and the balance sheet at December 31, 2016. Cooperative uses the periodic
inventory system. The January 1, 2016 merchandise inventory balance will appear
only in the cost of goods sold section of the income statement.
as an addition in
the cost of goods sold section of the income statement and as a current asset on the
balance sheet.
as a deduction in the cost of goods sold section of the income
statement and as a current asset on the balance sheet.
balance sheet
Theory of Accounts - Inventory Valuation (Average)

only as an asset on the

Question 11
An entity shall include in its inventory all goods
Possessed but not owned by the entity at the balance sheet date
possessed by the entity at the balance sheet date
entity at the balance sheet date

Owned but not

Owned and possessed by the

Owned by the entity at the balance sheet date,

regardless of location
Theory of Accounts - Inventory Valuation (Average)

Question 12
FOB destination means that
The freight charges are actually to be paid by the buyer
actually to be paid by the seller.

The freight charges are

The ownership of goods is transferred upon receipt

of the goods by the buyer and the seller is the owner of the goods while in transit

The

ownership of goods is transferred upon shipment of the goods by the seller and the
buyer is the owner of the goods while in transit
Theory of Accounts - Inventory Valuation (Average)

Question 13
Which of the following would not be included in the cost of work in process inventory?
Maintenance cost of factory equipment
Depreciation on factory equipment
Cost of electricity to operate factory equipment

Depreciation on office equipment in

the sales managers office

Theory of Accounts - Inventory Valuation (Average)

Question 14

Which of the following terms represents the deduction from the invoice price of
purchased goods granted by suppliers for early payment?
Trade discount
Purchase discount
Purchase return and allowance

Sales

discount
Theory of Accounts - Inventory Valuation (Average)

Question 15
Which of the following would not be included in the cost of work in process inventory?
Cost of electricity to operate factory equipment
Depreciation on factory
equipment

Depreciation on office equipment in the sales managers office

Maintenance cost of factory equipment

Theory of Accounts - Inventory Valuation (Average)

Question 16
In no case can "market" in the lower-of-cost-or-market rule be more than
estimated selling price in the ordinary course of business
estimated selling price
in the ordinary course of business less reasonably predictable costs of completion and
disposal, an allowance for an approximately normal profit margin, and an adequate
reserve for possible future losses
estimated selling price in the ordinary course of
business less reasonably predictable costs of completion and disposal

estimated

selling price in the ordinary course of business less reasonably predictable costs of
completion and disposal and an allowance for an approximately normal profit margin
Theory of Accounts - Inventory Valuation (Average)

Question 17
What is the maximum amount at which inventory can be valued when the goods have
experience a permanent decline in value?

Net realizable value reduced by a normal profit margin

Sales price

Net realizable value

Historical cost

Theory of Accounts - Inventory Valuation (Average)

Question 18
Why are inventories stated at lower-of-cost-or-market?
To be conservative
To report a loss when there is a decrease in the future utility
below the original cost

To permit future profits to be recognized

To report a loss

when there is a decrease in the future utility

Theory of Accounts - Inventory Valuation (Average)

Question 19
If goods shipped FOB destination are in transit at the end of the year, they should be
included in the inventory balance of the
Common carrier
Bank
Buyer

Seller

Theory of Accounts - Inventory Valuation (Average)

Question 20
Which of the following describes the flow of product costs through the inventory
accounts of a manufacturer?
Raw materials, direct labor, factory overhead
finished goods

Raw materials, goods in process,

Raw materials, goods in process, factory overhead, finished goods

Raw materials, direct labor, factory overhead, finished goods

Theory of Accounts - Inventory Valuation (Average)

Question 21

How should prompt payment discount be dealt with when valuing inventories at the
lower of cost and net realizable value?
Ignored
Deducted from cost
Added to cost

Deducted in arriving at NRV

Theory of Accounts - Inventory Valuation (Average)

Question 22
An entity returned merchandise purchased on account. Under a perpetual inventory
system, the account credited in the journal entry to record the return is
Purchase returns and allowances
Purchases
Accounts payable

Inventory

Theory of Accounts - Inventory Valuation (Average)

Question 23
How should trade discounts be dealt with valuing inventories at the lower of cost and net
realizable value (NRV)?
Added to cost
Deducted from cost

Ignored

Deducted in arriving at NRV

Theory of Accounts - Inventory Valuation (Average)

Question 24
Which method(s) may be used to record a loss due to a price decline in the value of
inventory?
Direct method

Allowance method

Both a and c

Sales method

Theory of Accounts - Inventory Valuation (Average)

Question 25
When a portion of inventory has been pledged as security on a loan
The cost of the pledged inventory should be transferred from current assets to
noncurrent assets.

The value of the portion pledged should be subtracted from the

debt

An equal amount of retained earnings should be appropriated

The fact

should be disclosed but the amount of current assets should not be affected
Theory of Accounts - Inventory Valuation (Average)

Question 26
An entitys inventory cost in its statement of financial position was lower using first-in,
first-out than last-in, first-out. Assuming no beginning inventory, what direction did the
cost of purchases move during the period?
Cannot be determined
Up
Down

Steady

Theory of Accounts - Inventory Valuation (Average)

Question 27
Inventories encompass all of the following, except
Finished goods produced
Merchandise purchased by a retailer
other property not held for sale

Land and

Materials and supplies awaiting use in the production

process
Theory of Accounts - Inventory Valuation (Average)

Question 28
Dennis Co. received merchandise on consignment. As of January 31, Dennis included
the goods in inventory, but did not record the transaction. The effect of this on its
financial statements for January 31 would be
net income was correct and current assets were understated
assets, and retained earnings were overstated

net income, current

net income and current assets were

overstated and current liabilities were understated

retained earnings were understated
Theory of Accounts - Inventory Valuation (Average)

net income, current assets, and

Question 29
Which of the following is not a basic assumption of the gross profit method?
Goods not sold must be on hand
The beginning inventory plus the purchases
equal total goods to be accounted for

The total amount of purchases and the total

amount of sales remain relatively unchanged from the comparable previous period
the sales, reduced to the cost basis, are deducted from the sum of the opening
inventory plus purchases, the result is the amount of inventory on hand
Theory of Accounts - Inventory Valuation (Average)

Question 30
How should sales staff commission be dealt with when valuing inventories at the lower
cost and net realizable value (NRV)?
Ignored
Deducted from cost
Added to cost
Theory of Accounts - Inventory Valuation (Average)

Deducted in arriving at NRV

If