Republic of the Philippines Commission on Higher Education Don Honorio Ventura State University Bacolor, Pampanga QUIZ CHAPTER 6 AND 7- RECEIVABLE FINANCING AND INVENTORIES ACCTG 102- INTERMEDIATE ACCOUNTING 1 SETA 1. The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in. An overstatement of asset and net income An understatement of asset and net income An understatement of liability and an overstatement of equity ‘An understatement of cost of goods sold and liability and an overstatement of assets. ve ap 2. Why are inventories measured at lower of cost and net realizable value? a. To be conservative. b. To permit future profit to be recognized. ¢. To report a loss when there is a dectease in future utility. d. to report a loss when there is a decrease in future utility below the original cost. 3. Where should be good in transit that were recently purchased fob destination be included? a. Accounts payable b. Equipment ¢. Inventory 4. Not in the statement of financial position 4. Which statement is incorrect regarding pledge ofaccounts receivable? 2. New receivables can be substituted for the onescollected ». The accounts pledged are not transferred to aspecial ledger control account cc. No special accounting for the borrowing is needed. d. Does not require note disclosure relating to detailsof transaction. On November 30, accounts receivable in the amount of P900,000 were assigned to Kaban Finance Co. by Kalan as security for a loan of P750,000. Kaban charged a 3% commission on the accounts; the interest rate on the note is 12%. During December, Kalan collected P350,000 on assigned accounts after deducting P560 of discounts. Kalan wrote off a P530 assigned account. On December 31, Kalan remitted to Kaban the amount collected plus one month's interest on the note, ACCTG 102 i|PageHow much is Kalan’s equity in the assigned accountsreceivable as of December 31? a. P149,470 c. P141,410 b. P141,970 d. P148,910 SOLUTIONS: ORIGINAL AR ASSIGNED = 900,000 ORIGINAL NOTES PAYABLE = 750,000 COLLECTION OF AR = (350,560) REPAYMENT 000) WRITE OFF = (530) NOTES PAYABLE 12/31 = 400,000 AR ASSIGNED 12/31 = 548,910 To get the equity assigned AR (548,910- 400,000) = 148, 910 The Hinoba-an Department Store wishes to discount a note receivable arising from the sale of merchandise in order to meet some maturing obligations. The note has a face amount of P50,000. The note bears interest of 12% and isdue in one year. The bank rate in discounting notes is 12%. Assuming that the note was discounted ten months prior to maturity. 6. The proceeds from this discounted note amounted to a. P56,000 c. P50,400 b. 51,000 d. PS0,000 SOLUTIONS: PRINCIPAL 50,000 INTEREST (50,000 X 0.12) 6,000 MATURITY VALUE 56,000 DISCOUNT (50,000 X 0.12 X 10/12) (5,600) NET PROCEEDS 50,400 ACCTG 102 2|Page[Link] the note discounting is treated as a sale withoutrecourse, the loss on discounting is, a. 1,000 . P400 b. P 600 d Po NET PROCEEDS 50,400 LESS: CA OF THE PRINCIPAL 50,000 ACCRUED INTEREST (50,000 X 0.12 X2/12) 1,000 51,000 LOSS ON DISCOUNTING 600 8, Sleeping Corporation factored P600,000 of accounts receivable to Beauty Finance Co, Control was surrendered by Sleeping. Beauty accepted the receivables subject to recourse for non-payment. Beauty assessed a fee of 3% and retains a holdback equal to 5% of the accounts receivable. In addition, Beauty charged 15% interest computed on a weighted-average time to maturity of the receivables of $4 days. The fair value of the recourse obligation is P9,000. The loss on factoring to be recognized by Sleeping Corporation is. a, P31,315 c. P6L3IS b. P40,315 d. P70,315 SOLUTION AR Factored. P 600,000 Service Charge (600,000 x 3% (18,000) Factor’s holdback (600,000 x 5%) (30,000) Interest Charge (600,000 x 15% x 54/365) 13,315) PROCEEDS FROM FACTORING 538,685 ‘To get the Loss on factoring Cash 538, 685 Receivable from Factor 30,000 Loss on Factoring 4 Receivable from Recourse Liability 9, Which of the following will not qualify as inventory? Dogs that a pet shop buys from breeders that itthen sells. Cryptocurrencies for sale in the ordinary course ofbusiness. d. Plant held for sale. ACCTG 102 Lubricants that are consumed by an entity’smachinery in producing goods. 3|Page10. The inventory on hand at December 31 for Fair Company valued at a cost of 947,800. The following items were not included in this inventory amount: a. Purchased goods, in transit, shipped FOBdestination invoice price P32,000 which included freight charges of P1,600. ». Goods held on consignment by Fair Company at a sales price of P28,000, including sales commission of 20% of the sales price. ¢. Goods sold to Garcia Company, under terms FOB destination, invoiced for P18,500 which includes P1,000 freight charges to deliver the goods. Goods are in transit. 4, Purchased goods in transit, terms FOB origin, invoice price P48,000, freight cost, P3,000. e. Goods out on consignment to Manil Company, sales price P36,400, shipping cost of P2,000, Assuming that the company's selling price is 140% of inventory cost, the adjusted cost of Fair ‘Company's inventory at December 31 should be a. PI,055,700 cc. PI,039,300 b. P1,039,500 d. P1,037,300 SOLUTIONS: Unadjusted Inventory P947,800, a. Purchased FOB Destination = ’b. Goods held on Consignment = «©. Goods sold to Garcia 12,500 (48,500- 1,000/ 1.40) Purchased FOB Shipping Point 31,000 «. Goods out on consignment 28,000 (36,400 /1.4) + 2,000 ‘TOTAL 1,039,300. 11. The following may be included in the cost ofinventories, except a. Administrative overheads. b. Storage costs. . Wasted materials, labor and other productioncosts. d. Selling costs. 12. In accordance with the objective of PAS 2, a primary issue in accounting for inventories is a, The amount of cost to be recognized as an asset and carried forward until the related revenues are recognized. The cost formulas to be used to assign costs to inventories ‘The measurement of inventories held by producersof agricultural and forest products. d. The measurement of inventories held by commodity broker-traders. ACCTG 102 4|Page13. Which statement is true when accounts receivable is factored without recourse? The transaction may be accounted for either as secured borrowing or sale depending upon the substance of transaction. b. The accounts receivable is used as collateral for a promissory note issued to the factor. €. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the accounts receivable. 4. The financing cost should be recognized ratably over the collection period. 14. Ifa note receivable is discounted with recourse a. Contingent liability does not exist. b. Note receivable discounted is eredited. Liability for note receivable discounted is credited. d. Note receivable must be credited. 15, Which of the following generally would not be separately accounted for in the computation of cost of goods sold? ‘Trade discounts applicable to purchases Cash discounts taken, Purchase returns and allowances Cost of transportation for merchandised purchased, 16, Which of the following should be included in inventory at the end of the reporting period? a. Goods in transit which were purchased FOB shipping point. b. Goods in transit which were purchased FOB Destination ©. Goods received from another entity on consignment. 4. Goods in transit to a customer which were sold to the customer FOB shipping point. 17, How is a significant amount of consignment inventory reported? a. Reported separately by the consignor. b, Combined with another inventory of the consignor. c. Reported separately by the consign 4. Combined with another inventory of the consignee. 18, Anentry debiting inventory and crediting cost of goods sold would be made when. a. Merchandise is sold and the periodic inventory method is used, b. Merchandise is sold and the perpetual inventory method is used, ¢. Merchandise is returned and the perpetual inventory. d. Merchandise is retumed and the periodic inventory method is used. ACCTG 102 5|Page19-20 The FIRM Company reviewed its inventories and found the following items, a. _ In the shipping room was a product costing P 13,400 when the physical count was taken. Because it was marked “Hold for shipping instructions.” It was not included in the count. The customer order was dated December 15, but the product was shipped, and customer billed on January 4, 2023. b, On December 27, 2022, merchandise costing P 11,648 was received and recorded. The invoice accompanying the merchandise was marked on consignment. c. The company received merchandise costing P 4,625 on January 2, 2023. The invoice, which was recorded on January 3, 2023, showed shipment was made under FOB Shipping Point on December 31, 2022. The merchandise was not included in the inventory because it was not on hand when the physical count was taken, d. Merchandise costing P 16,666 was received on January 5, 2023, and the related purchase invoice was recorded January 6. The shipment of this merchandise was made on December 31, 2022, FOB Destination. e, An item costing P 65,000 was sold and delivered to the customer on December 29, 2022. The goods were included in the inventory because the sale was with a repurchase agreement that requires the firm to buy back the inventory on January 15, 2023. 19. How much is the total inclusions in the Inventory? a. 99,691 c. P 83,025 ‘b, 94,673 dP 111,339 20. How much is the total exclusions in the Inventory? 41,714 ©. 32,939 b. 28,341 [Link] SOLUTIONS: a 13,400 INCLUDED. ». 11,648 EXCLUDED €. 4,625 INCLUDED. d 16,666 EXCLUDED €. 65,000 INCLU (THIS IS ACTUALLY A LOAN TRANSACTION WITH THE INVENTORY AS COLLATERAL) ACCTG 102 6|Page21-2 (you shade the two items, but only one question) Chino Company asks you to review its December 31, 2022, inventory values. The following. information is given to you. a. Chino uses the periodic method of recording inventory. A physical count reveals P 704,670 of inventory on hand at December 31, 2022. b. Not included in the physical count of inventory is P 31,260 of merchandise purchased on December 15 from China. This merchandise was shipped FOB Shipping point on December 29 and arrived in January. The invoice arrived and was recorded on December 31. c. Not included in the inventory is P 25,620 of merchandise purchased from Chinee Company. This merchandise was received and on December 31 after the inventory had been counted, The invoice was received and recorded on December 30. d. Included in inventory was P 31,314 of inventory held by Chino on consignment from Chile Corporation €. Included in inventory is merchandise sold to Simson FOB Shipping point. This merchandise was shipped after it was counted. The invoice was prepared and recorded as a sale for P 56,700 on December 31. The cost of this merchandise was P 34,560 and Simson received the merchandise on January 5 £. Excluded from the was a carton labelled “Please accept for credit” this carton contains merchandise costing P 4,500 which had been sold to a customer for P 7,800. No entry had been made to the books to reflect the return, but none of the returned merchandise seemed damaged. How much is the corrected amount of Inventory a. 706,776 ©. 637, 296 b. 700,176 4, 711,564 Taventory per count P 704,670 P 31,260 25,620 G1314) 4,500 ». c. d E 34,560) EF ‘TOTAL 700.176 ACCTG 102 7|PageACCTG 102 8|Page