Q: Which formula correctly calculates gross profit percentage?

$$\frac{\text{Gross Profit}}{\text{Net Sales}} \times 100$$

Q: A company has net sales of $$100,000 and cost of goods sold of 60$$,000. What is the gross profit percentage?

$$\frac{100,000 - 60,000}{100,000} \times 100 = 40\%$$

Question 1

Which of the following best describes the primary difference between a service company and a merchandising company in terms of financial statement accounts?

Accepted Answer

Merchandising companies report inventory and cost of goods sold, while service companies do not.

Question 2

A company purchases inventory for $$10,000, pays 500 $$for shipping (FOB shipping point), and receives a $1,000 purchase discount for early payment. What is the total cost of inventory recorded?

Accepted Answer

$$10,000 + 500$$ - $$1,000 = 9$$,500

Question 3

Which inventory costing method assigns the most recent costs to cost of goods sold when inventory costs are rising?

Accepted Answer

Last-in, First-out (LIFO)

Question 4

Under the perpetual inventory system, which of the following journal entries is required when inventory is sold to a customer?

Accepted Answer

Debit Cost of Goods Sold, Credit Inventory

Question 5

A company has the following data: Beginning Inventory = $$5,000, Purchases = 20$$,000, Ending Inventory = $4,000. What is the cost of goods sold?

Accepted Answer

$$5,000 + 20$$,000 - $$4,000 = 21$$,000

Question 6

Which of the following best explains the lower-of-cost-or-market (LCM) rule?

Accepted Answer

Inventory is reported at the lower of historical cost or market value.

Question 7

If a company uses the FIFO method during a period of rising prices, which of the following is true?

Accepted Answer

Cost of goods sold will be lower and ending inventory will be higher.

Question 8

Which formula correctly calculates gross profit percentage?

Accepted Answer

$$\frac{	ext{Gross Profit}}{	ext{Net Sales}} 	imes 100$$

Question 9

A company has net sales of $$100,000 and cost of goods sold of 60$$,000. What is the gross profit percentage?

Accepted Answer

$$\frac{100,000 - 60,000}{100,000} 	imes 100 = 40\%$$

Question 10

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

Accepted Answer

Freight-out costs

Question 11

A company using the periodic inventory system has beginning inventory of $$8,000, purchases of 25$$,000, and ending inventory of $6,000. What is the cost of goods sold?

Accepted Answer

$$8,000 + 25$$,000 - $$6,000 = 27$$,000

Question 12

Which inventory costing method is most likely to result in the lowest taxable income when inventory costs are rising?

Accepted Answer

LIFO

Question 13

Which of the following statements about consigned goods is correct?

Accepted Answer

Consigned goods at the retailer’s location are included in the seller’s inventory.

Question 14

Which of the following best describes the effect of inventory errors on the financial statements?

Accepted Answer

Inventory errors affect both the balance sheet and the income statement.

Question 15

A company’s inventory turnover ratio is calculated as:

Accepted Answer

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

Question 16

If a company’s inventory turnover increases, what does this most likely indicate?

Accepted Answer

The company is selling inventory more quickly.

Question 17

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

Accepted Answer

XLOOKUP

Question 18

A company has the following information: Net sales = $$120,000, Cost of Goods Sold = 80$$,000, Average Inventory = $20,000. What is the inventory turnover ratio?

Accepted Answer

$$\frac{80,000}{20,000} = 4.0$$

Question 19

Which of the following is a reason why a physical inventory count is necessary even in a perpetual inventory system?

Accepted Answer

To detect theft or damaged inventory not recorded in the system

Inventory and Cost of Goods Sold: Study Notes for Financial Accounting

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