Q: If a company uses the periodic inventory system, which formula is used to calculate cost of goods sold (COGS)?

$$\text{COGS} = \text{Beginning Inventory} + \text{Purchases} - \text{Ending Inventory}$$

Q: Which of the following best describes the gross profit percentage formula?

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

Question 1

Which of the following best describes inventory in financial accounting?

Accepted Answer

Goods purchased for resale, classified as an asset until sold.

Question 2

A company using a perpetual inventory system makes a sale. Which of the following entries is required to record the reduction of inventory?

Accepted Answer

Debit Cost of Goods Sold, Credit Inventory

Question 3

Which inventory costing method assigns the cost of the earliest goods purchased to cost of goods sold?

Accepted Answer

First-In, First-Out (FIFO)

Question 4

Under the lower-of-cost-or-market (LCM) rule, inventory should be reported on the balance sheet at:

Accepted Answer

The lower of its historical cost or market value

Question 5

A company purchased inventory for $$30 per unit. By year-end, the market value dropped to 26 $$per unit. According to U.S. GAAP, at what value should the inventory be reported?

Accepted Answer

$26 per unit

Question 6

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

Accepted Answer

Freight-out costs

Question 7

If a company uses the periodic inventory system, which formula is used to calculate cost of goods sold (COGS)?

Accepted Answer

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

Question 8

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

Accepted Answer

Last-In, First-Out (LIFO)

Question 9

A company has the following data: Net sales = $$88,500; Cost of goods sold = 28$$,500. What is the gross profit percentage? (Round to the nearest whole percent.)

Accepted Answer

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

Question 10

Which of the following best describes the effect of using FIFO during a period of rising prices?

Accepted Answer

Lower cost of goods sold and higher net income

Question 11

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

Accepted Answer

It provides real-time inventory balances and cost of goods sold.

Question 12

Which of the following transactions would require a debit to Inventory and a credit to Accounts Payable?

Accepted Answer

Purchasing inventory on credit

Question 13

Which of the following is true regarding consigned goods?

Accepted Answer

Goods out on consignment are included in the seller's inventory.

Question 14

A company has beginning inventory of $$10,500, purchases of 28$$,000, freight-in of $$2,000, and ending inventory of 12$$,000. What is the cost of goods sold?

Accepted Answer

$$10,500 + 28,000 + 2,000 - 12,000 = 28,500$$

Question 15

Which of the following best describes the gross profit percentage formula?

Accepted Answer

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

Question 16

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 reported in the system

Question 17

Which of the following best describes the effect of LIFO on the balance sheet during periods of rising prices?

Accepted Answer

Ending inventory is valued at older, lower costs

Question 18

Which Excel function can be used to match inventory identifiers with their descriptions in another file?

Accepted Answer

XLOOKUP

Question 19

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.

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

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