Question 1

Which of the following best describes the main difference between a service company and a merchandising company?

Accepted Answer

A service company provides a service to the customer, while a merchandising company provides a good.

Question 2

A company sold $10,000 of goods with terms 2/10, net 30. The customer paid on day 8. Using the gross method, what is the amount of cash received?

Accepted Answer

$9,800

Question 3

Which journal entry correctly records the return of inventory by a company using a perpetual inventory system?

Accepted Answer

Debit Accounts Payable, Credit Inventory

Question 4

Under the perpetual inventory system, which account is debited when goods are purchased for resale?

Accepted Answer

Inventory

Question 5

A company has the following data: Beginning Inventory = $$55,000; Purchases = 25$$,000; Purchase Discounts = $$650; Purchase Returns and Allowances = 1$$,500; COGS = $40,000. What is the ending inventory balance?

Accepted Answer

$37,850

Question 6

Which of the following is the correct formula for calculating Net Sales?

Accepted Answer

$$Net\ Sales = Sales\ Revenue - Sales\ Discounts - Sales\ Returns\ and\ Allowances$$

Question 7

A company uses a periodic inventory system. Which account is credited when goods are returned to the supplier?

Accepted Answer

Purchase Returns and Allowances

Question 8

If a company uses the perpetual inventory system and pays freight costs to receive inventory under FOB Shipping Point, which account is debited?

Accepted Answer

Inventory

Question 9

Which cost flow assumption results in the oldest inventory costs being assigned to cost of goods sold?

Accepted Answer

FIFO

Question 10

A company has net sales of $$500,000 and cost of goods sold of 320$$,000. What is the gross profit percentage?

Accepted Answer

36%

Question 11

Which of the following is the correct formula for Inventory Turnover Ratio?

Accepted Answer

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

Question 12

A company has beginning inventory of $$60,000, ending inventory of 100$$,000, and COGS of $320,000. What is the Inventory Turnover Ratio?

Accepted Answer

3.2

Question 13

Which of the following best describes the effect of a higher Days’ Payable Outstanding (DPO)?

Accepted Answer

It means the company takes longer to pay suppliers, which could indicate leverage with suppliers.

Question 14

A company has net income of $$25,000 and net sales of 500$$,000. What is the profit margin?

Accepted Answer

5%

Question 15

Which of the following is the correct formula for Average Days in Inventory?

Accepted Answer

$$Average\ Days\ in\ Inventory = \frac{365}{Inventory\ Turnover\ Ratio}$$

Question 16

A company has purchases of $$200,000, beginning AP of 60$$,000, and ending AP of $100,000. What is the AP Turnover Ratio?

Accepted Answer

$$AP\ Turnover = \frac{200,000}{(60,000 + 100,000)/2} = 1.67$$

Question 17

Which of the following is true about the cost flow assumption in inventory accounting?

Accepted Answer

The cost flow assumption does not have to match the physical flow of goods.

Question 18

A company using a periodic inventory system has beginning inventory of $$55,000, purchases of 25$$,000, purchase discounts of $$650, purchase returns and allowances of 1$$,500, and ending inventory of $48,000. What is the cost of goods sold?

Accepted Answer

$$COGS = 55,000 + 25,000 - 650 - 1,500 - 48,000 = 29,850$$

Question 19

Which of the following is the correct formula for Gross Profit Percentage?

Accepted Answer

$$Gross\ Profit\ Percentage = \frac{Net\ Sales - COGS}{Net\ Sales} 	imes 100$$

Inventory and Cost of Goods Sold – Comprehensive Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards