Q: Which formula correctly calculates gross profit percentage?

$$\frac{\text{Gross profit}}{\text{Net sales revenue}}$$

Q: Which formula is used to calculate inventory turnover?

$$\frac{\text{Cost of goods sold}}{\text{Average inventory}}$$

Q: Which formula is used to calculate days' inventory outstanding?

$$\frac{365}{\text{Inventory Turnover}}$$

Question 1

Which of the following best describes the perpetual inventory system?

Accepted Answer

Inventory is updated continuously with each purchase and sale, and a running total is maintained.

Question 2

A company purchases inventory for $$600,000, pays 4$$,000 for freight-in, receives $$25,000 in purchase returns, 5$$,000 in purchase allowances, and $14,000 in purchase discounts. What is the net cost of purchases?

Accepted Answer

$560,000

Question 3

Under FOB Shipping Point, who owns the goods while they are in transit?

Accepted Answer

The purchaser owns the goods while in transit.

Question 4

Which inventory costing method is most appropriate for a jewelry store selling unique items?

Accepted Answer

Specific identification cost

Question 5

A company has beginning inventory of $$100,000, purchases of 560$$,000, and ending inventory of $120,000. What is the cost of goods sold?

Accepted Answer

$540,000

Question 6

Which formula correctly calculates gross profit percentage?

Accepted Answer

$$\frac{	ext{Gross profit}}{	ext{Net sales revenue}}$$

Question 7

If inventory costs are increasing, which statement is true regarding FIFO and weighted-average methods?

Accepted Answer

FIFO results in a higher gross profit and higher ending inventory than weighted-average.

Question 8

A company sells merchandise with a right of return under IFRS. What must it recognize at the time of sale?

Accepted Answer

Sales revenue and an accrued liability called Sales Refund Payable.

Question 9

Which of the following is NOT included in the cost of inventory?

Accepted Answer

Freight-out costs

Question 10

A company has sales revenue of $$900,000, cost of goods sold of 540$$,000, and gross profit of $360,000. What is the gross profit percentage?

Accepted Answer

60%

Question 11

Which journal entry is required when inventory is written down under the lower-of-cost-and-net-realizable-value (LCNRV) rule?

Accepted Answer

Debit Cost of Goods Sold, Credit Inventory

Question 12

If a company overstates its ending inventory, what is the effect on net income for the period?

Accepted Answer

Net income is overstated.

Question 13

Which formula is used to calculate inventory turnover?

Accepted Answer

$$\frac{	ext{Cost of goods sold}}{	ext{Average inventory}}$$

Question 14

A company has beginning inventory of $$50,000, ending inventory of 70$$,000, and cost of goods sold of $120,000. What is the inventory turnover?

Accepted Answer

2.0

Question 15

Which formula is used to calculate days' inventory outstanding?

Accepted Answer

$$\frac{365}{	ext{Inventory Turnover}}$$

Question 16

Under the periodic inventory system, when is the cost of goods sold determined?

Accepted Answer

At the end of the accounting period.

Question 17

A company uses FIFO under the perpetual system. It has 10 units at $$11, buys 20 units at 14$$, then 15 units at $16, and sells 40 units. What is the cost of goods sold?

Accepted Answer

$550

Question 18

Which of the following is a reason why comparability is important in inventory accounting?

Accepted Answer

It enables investors to compare financial statements across periods.

Question 19

A company offers sales terms of 2/10, n/30. If a customer pays within 10 days on a $1,500 invoice, what is the amount of the sales discount?

Accepted Answer

$30

Question 20

Which Excel function is recommended for analyzing inventory records across multiple files?

Accepted Answer

XLOOKUP

Inventory and Cost of Goods Sold: Financial Accounting Chapter 5 Study Notes

Study Guide - Practice Questions

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