Question 1

Which of the following best describes the treatment of consigned goods in the financial statements of the consignor?

Accepted Answer

Consigned goods are reported as inventory on the balance sheet of the consignor until sold.

Question 2

A company uses the periodic inventory system. At year-end, the following data is available: Beginning Inventory = $$10,000$$, Purchases = $$25,000$$, Ending Inventory = $$8,000. $$What is the Cost of Goods Sold (COGS)?

$$	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Ending Inventory}$$

Accepted Answer

$$27,000$$

Question 3

Which inventory costing method typically results in the highest gross profit during periods of rising prices?

Accepted Answer

FIFO (First-In, First-Out)

Question 4

Under U.S. GAAP, which principle requires that inventory be reported at the lower of its cost or market value?

Accepted Answer

Lower of Cost or Market (LCM) rule

Question 5

A company purchases inventory for $$5,000$$ and pays $$300 in $$freight-in costs. What is the total cost capitalized as inventory?

Accepted Answer

$$5,300$$

Question 6

Which of the following journal entries is correct for recording the sale of inventory under a perpetual inventory system (excluding sales revenue entry)?

Accepted Answer

Debit: Cost of Goods Sold; Credit: Inventory

Question 7

A company had net sales revenue of $$50,000$$ and gross profit of $$20,000. $$What is the gross profit percentage?

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

Accepted Answer

$$40\%$$

Question 8

If a company pays for inventory within the discount period and receives a $$2\%$$ discount on a $$10,000$$ purchase, what is the net cost of inventory recorded?

$$	ext{Net Cost} = 	ext{Purchase Price} - (	ext{Purchase Price} 	imes 	ext{Discount Rate})$$

Accepted Answer

$$9,800$$

Question 9

Which of the following is true regarding the treatment of freight-out costs?

Accepted Answer

Freight-out is expensed as a selling expense when incurred.

Question 10

A company has Cost of Goods Sold of $$36,000$$ and average inventory of $$4,000. $$What is the inventory turnover ratio?

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

Accepted Answer

$$9$$

Question 11

Which of the following statements is correct regarding the periodic inventory system?

Accepted Answer

Inventory is updated at the end of the period based on a physical count.

Question 12

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

Accepted Answer

Net income will be lower than under FIFO.

Question 13

A company’s beginning inventory is $$12,000$$, purchases are $$18,000$$, and ending inventory is $$10,000. $$What is the cost of goods sold?

$$	ext{COGS} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Ending Inventory}$$

Accepted Answer

$$20,000$$

Question 14

Which of the following best describes the weighted-average cost method?

Accepted Answer

It assigns a cost to inventory and cost of goods sold based on the average cost of all units available for sale during the period.

Question 15

A company’s inventory turnover ratio is $$14.9. $$What is the average number of days inventory is outstanding?

$$	ext{Days Inventory Outstanding} = \frac{365}{	ext{Inventory Turnover}}$$

Accepted Answer

$$24.5$$ days

Question 16

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

Accepted Answer

Freight-out costs to deliver goods to customers

Question 17

A company purchases $$1,000$$ units of inventory at $$5$$ per unit and later purchases $$500$$ units at $$6$$ per unit. If the company sells $$1,200$$ units using FIFO, what is the cost of goods sold?

$$	ext{COGS} = (1,000 	imes 5) + (200 	imes 6)$$

Accepted Answer

$$6,200$$

Question 18

Which of the following is a key advantage of the perpetual inventory system over the periodic system?

Accepted Answer

It provides real-time information about inventory levels.

Question 19

If a company receives a purchase allowance, how does it affect the cost of inventory?

Accepted Answer

It decreases the cost of inventory.

Question 20

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

Accepted Answer

An overstatement of ending inventory will overstate net income.

Inventory & Cost of Goods Sold: Concepts, Methods, and Financial Statement Impacts

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