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

$$\text{Beg Inventory} + \text{Purchases} - \text{End Inventory} = \text{COGS}$$

Q: A company has net sales of $$88,500 and cost of goods sold of 28$$,500. What is the gross profit percentage?

$$\frac{88,500 - 28,500}{88,500} \times 100 = 68\%$$

Q: Which formula is used to calculate inventory turnover?

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

Question 1

Which of the following best describes the relationship between inventory and cost of goods sold in a merchandising company?

Accepted Answer

Inventory is an asset on the balance sheet, and cost of goods sold is an expense on the income statement.

Question 2

A company purchased inventory for $$30 per unit. By year-end, the market value dropped to 26 $$per unit. According to the lower-of-cost-or-market (LCM) rule, at what value should the inventory be reported?

Accepted Answer

$26 per unit

Question 3

Which inventory costing method is NOT permitted under International Financial Reporting Standards (IFRS)?

Accepted Answer

Last-in, first-out (LIFO) method

Question 4

Under the perpetual inventory system, which journal entry is required when inventory is sold for cash?

Accepted Answer

Debit Cost of Goods Sold; Credit Inventory

Question 5

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

Accepted Answer

$$	ext{Beg Inventory} + 	ext{Purchases} - 	ext{End Inventory} = 	ext{COGS}$$

Question 6

A company has beginning inventory of $$4,000, purchases of 16$$,000, and ending inventory of $5,000. What is the cost of goods sold?

Accepted Answer

$$\15$$,000$

Question 7

Which inventory costing method would result in the lowest taxable income when inventory costs are rising?

Accepted Answer

LIFO

Question 8

If a company uses the average-cost method, how is the cost per unit calculated?

Accepted Answer

By dividing total cost of goods available for sale by total units available for sale

Question 9

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

Accepted Answer

Freight-out

Question 10

A company has net sales of $$88,500 and cost of goods sold of 28$$,500. What is the gross profit percentage?

Accepted Answer

$$\frac{88,500 - 28,500}{88,500} 	imes 100 = 68\%$$

Question 11

Which of the following best describes the effect of a LIFO liquidation?

Accepted Answer

Older, lower costs are shifted into cost of goods sold, increasing net income.

Question 12

Which principle requires that inventory be reported at the lower of its historical cost or market value?

Accepted Answer

Lower-of-cost-or-market (LCM)

Question 13

Which of the following would NOT be included in a company’s inventory account?

Accepted Answer

Goods held on consignment for another company

Question 14

If a company’s gross profit percentage is 50.4%, what does this mean?

Accepted Answer

Each $$1 of sales generates 0.504 of $$gross profit.

Question 15

Which formula is used to calculate inventory turnover?

Accepted Answer

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

Question 16

Which inventory costing method provides the most up-to-date inventory cost on the balance sheet?

Accepted Answer

FIFO

Question 17

A company’s inventory turnover ratio is 3.3, and its days inventory outstanding (DIO) is 111 days. What does this indicate?

Accepted Answer

The company sells its inventory approximately every 111 days.

Question 18

Which of the following is a plausible effect of ESG (environmental, social, and governance) factors on inventory valuation?

Accepted Answer

ESG factors can cause inventory to be written down if demand declines due to environmental concerns.

Question 19

Which Excel function can be used to analyze inventory records by matching SKUs to descriptions and warehouse locations?

Accepted Answer

XLOOKUP

Inventory and Cost of Goods Sold: Concepts, Methods, and Applications

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