Q: A company has the following inventory data: Beginning inventory: 10 units at $$10; Purchase 1: 25 units at 14$$; Purchase 2: 25 units at $18. If 40 units are sold, what is the cost of goods sold using the FIFO method?

$$10 \times 10 + 14$$ \times 25 + $$18 \times 5 = 100$$ + $$350 + 90$$ = $540

Q: Which formula correctly calculates the gross profit percentage?

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

Q: If a company uses the average-cost method, which formula is used to determine the cost per unit?

$$\text{Average Cost per Unit} = \frac{\text{Cost of Goods Available for Sale}}{\text{Number of Units Available for Sale}}$$

Question 1

Which of the following best describes the effect of an overstatement of ending inventory on the financial statements for the current period?

Accepted Answer

Cost of goods sold is understated, and net income is overstated.

Question 2

A company has the following inventory data: Beginning inventory: 10 units at $$10; Purchase 1: 25 units at 14$$; Purchase 2: 25 units at $18. If 40 units are sold, what is the cost of goods sold using the FIFO method?

Accepted Answer

$$10 	imes 10 + 14$$ 	imes 25 + $$18 	imes 5 = 100$$ + $$350 + 90$$ = $540

Question 3

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

Accepted Answer

LIFO

Question 4

Under the perpetual inventory system, which journal entry is required when inventory is sold on account?

Accepted Answer

Debit Accounts Receivable and Cost of Goods Sold; Credit Sales Revenue and Inventory

Question 5

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

Accepted Answer

$$4,000 + 16$$,000 - $$5,000 = 15$$,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 Under Armour, Inc. paid $$3,000,000 for inventory, but the replacement cost at year-end is 2$$,000,000, at what amount should inventory be reported under the lower-of-cost-or-market rule?

Accepted Answer

$2,000,000

Question 8

Which formula correctly calculates the gross profit percentage?

Accepted Answer

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

Question 9

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

Accepted Answer

LIFO is not permitted under IFRS.

Question 10

A company’s cost of goods sold is $$6,000, ending inventory is 1$$,500, and beginning inventory is $1,200. What are the budgeted purchases using the cost-of-goods-sold model?

Accepted Answer

$$6,000 + 1$$,500 - $$1,200 = 6$$,300

Question 11

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

Accepted Answer

ESG factors can lead to a decline in inventory value if demand decreases due to environmental or health concerns.

Question 12

If a company uses the average-cost method, which formula is used to determine the cost per unit?

Accepted Answer

$$	ext{Average Cost per Unit} = \frac{	ext{Cost of Goods Available for Sale}}{	ext{Number of Units Available for Sale}}$$

Question 13

Which of the following is true regarding inventory errors?

Accepted Answer

An error in ending inventory affects both the current and the next period.

Question 14

A company has sales revenue of $100,000 and a gross profit percentage of 50.4%. What is the estimated cost of goods sold?

Accepted Answer

$$100,000 	imes (1 - 0.504) = 49$$,600

Question 15

Which of the following is the correct formula for inventory turnover?

Accepted Answer

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

Question 16

Which of the following is a key requirement of U.S. GAAP regarding inventory disclosures?

Accepted Answer

Companies must disclose the inventory costing method used.

Question 17

Which of the following is true about consigned goods?

Accepted Answer

Goods out on consignment are included in the consignor’s inventory.

Question 18

A company’s beginning inventory is understated by $10,000. What is the effect on cost of goods sold and net income for the current period?

Accepted Answer

Cost of goods sold is understated, and net income is overstated.

Question 19

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

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