Q: Which formula correctly expresses the cost-of-goods-sold (COGS) model?

$$\text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory}$$

Question 1

Which of the following best describes the difference between inventory and supplies on a company's balance sheet?

Accepted Answer

Inventory is purchased for resale, while supplies are used internally by the company.

Question 2

A company using a perpetual inventory system makes a sale. Which of the following journal entries is required to record the reduction in inventory?

Accepted Answer

Debit Cost of Goods Sold; Credit Inventory

Question 3

Which inventory costing method would result in the highest cost of goods sold during a period of rising prices?

Accepted Answer

Last-in, First-out (LIFO)

Question 4

Under the lower-of-cost-or-market (LCM) rule, how should inventory be reported on the balance sheet?

Accepted Answer

At the lower of its historical cost or market value

Question 5

A company has the following data: Beginning Inventory = $$4,000, Purchases = 16$$,000, Cost of Goods Sold = $15,000. What is the ending inventory?

Accepted Answer

$5,000

Question 6

Which of the following is NOT included in the cost of inventory under U.S. GAAP?

Accepted Answer

Freight-out costs

Question 7

If a company uses the FIFO method, which costs are assigned to ending inventory when prices are rising?

Accepted Answer

The most recent (newest) purchase costs

Question 8

Which formula correctly expresses the cost-of-goods-sold (COGS) model?

Accepted Answer

$$	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Ending Inventory}$$

Question 9

A company has net sales of $$88,500 and cost of goods sold of 28$$,500. What is the gross profit percentage? (Round to the nearest whole percent.)

Accepted Answer

$$\frac{88,500 - 28,500}{88,500} = 68\%$$

Question 10

Which of the following statements about LIFO and FIFO is correct?

Accepted Answer

LIFO results in lower taxable income when inventory costs are rising.

Question 11

A company using the periodic inventory system has beginning inventory of $$10,500, purchases of 28$$,000, freight-in of $$2,000, and ending inventory of 12$$,000. What is the cost of goods sold?

Accepted Answer

$$10,500 + 28,000 + 2,000 - 12,000 = 28,500$$

Question 12

Which of the following best describes the impact of ESG (Environmental, Social, and Governance) factors on inventory valuation?

Accepted Answer

ESG factors can reduce the market value of inventory if demand declines due to environmental or health concerns.

Question 13

Which of the following is a key advantage of the perpetual inventory system?

Accepted Answer

It provides real-time inventory balances and cost of goods sold.

Question 14

If a company purchases inventory under FOB shipping point terms, who owns the goods during transit and who pays the transportation costs?

Accepted Answer

The buyer owns the goods and pays the transportation costs.

Question 15

Which formula is used to calculate inventory turnover?

Accepted Answer

$$	ext{Inventory Turnover} = \frac{	ext{Cost of Goods Sold}}{	ext{Average Inventory}}$$

Question 16

A company has the following inventory data: 10 units at $$10, 25 units at 14$$, and 25 units at $18. If 40 units are sold using the weighted-average method, what is the cost assigned to cost of goods sold?

Accepted Answer

$$	ext{Weighted Average Cost per Unit} = \frac{100 + 350 + 450}{60} = 15;\ 	ext{COGS} = 40 	imes 15 = 600$$

Question 17

Which of the following is true regarding inventory write-downs under U.S. GAAP and IFRS?

Accepted Answer

Under U.S. GAAP, inventory write-downs cannot be reversed; under IFRS, some write-downs can be reversed.

Question 18

Which Excel function can be used to match inventory identifiers with their descriptions in a separate reference file?

Accepted Answer

XLOOKUP

Inventory and Cost of Goods Sold: Financial Accounting Study Notes (Ch. 6)

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