$$\text{Cost of Goods Sold} = \text{Cost of Oldest Inventory} \times \text{Units Sold}$$

$$\text{Ending Inventory} = \text{Beginning Inventory} + \text{Purchases} - \text{Cost of Goods Sold}$$

Question 1

Which inventory costing method assigns the most recent costs to ending inventory under a perpetual inventory system?

Accepted Answer

LIFO (Last-In, First-Out)

Question 2

A company purchased $3,500 of inventory from Hair Inc. on account. What is the correct journal entry for this transaction?

Accepted Answer

Debit Inventory $$3,500; Credit Accounts Payable 3$$,500

Question 3

If a company uses the perpetual inventory system and returns $400 of merchandise to a supplier, what is the correct journal entry?

Accepted Answer

Debit Accounts Payable $$400; Credit Inventory 400$$

Question 4

Under the perpetual inventory system, which account is credited when inventory is sold on account?

Accepted Answer

Inventory

Question 5

Boston Bar Athletics has an inventory account balance of $$67,000 at year-end. A physical count shows 63$$,000. What is the adjusting entry?

Accepted Answer

Debit Cost of Goods Sold $$4,000; Credit Inventory 4$$,000

Question 6

Which formula correctly calculates the cost of goods sold under FIFO?

Accepted Answer

$$	ext{Cost of Goods Sold} = 	ext{Cost of Oldest Inventory} 	imes 	ext{Units Sold}$$

Question 7

A company sold $2,000 of merchandise to Crazy Patterns on account. What is the correct journal entry?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Sales Revenue 2$$,000

Question 8

Which of the following is NOT a step in preparing a multi-step income statement?

Accepted Answer

Add cost of goods sold to net sales

Question 9

If a company uses LIFO and prices are rising, what is the effect on net income compared to FIFO?

Accepted Answer

Net income will be lower under LIFO

Question 10

Which account is debited when inventory is purchased on account under the perpetual inventory system?

Accepted Answer

Inventory

Question 11

Big T Cleaners uses a perpetual inventory system. If 12 units are sold on October 8 and the company uses FIFO, which units are considered sold?

Accepted Answer

The 12 units purchased on October 1

Question 12

Which equation correctly calculates ending inventory under the perpetual system?

Accepted Answer

$$	ext{Ending Inventory} = 	ext{Beginning Inventory} + 	ext{Purchases} - 	ext{Cost of Goods Sold}$$

Question 13

If a company receives a payment from a customer for a previous sale on account, what is the correct journal entry?

Accepted Answer

Debit Cash; Credit Accounts Receivable

Question 14

Which of the following best describes the perpetual inventory system?

Accepted Answer

Inventory is updated continuously with each purchase and sale

Question 15

A company has beginning inventory of $$10,000, purchases of 25$$,000, and ending inventory of $8,000. What is the cost of goods sold?

Accepted Answer

$$\27$$,000$

Question 16

Which account is credited when a company pays for inventory previously purchased on account?

Accepted Answer

Accounts Payable

Question 17

If a company discovers inventory shrinkage during a physical count, what is the correct adjusting entry?

Accepted Answer

Debit Cost of Goods Sold; Credit Inventory

Question 18

Which of the following is a real-world consequence of using LIFO during periods of rising prices?

Accepted Answer

Lower taxable income

Question 19

Which formula is used to calculate gross profit on a multi-step income statement?

Accepted Answer

$$	ext{Gross Profit} = 	ext{Net Sales} - 	ext{Cost of Goods Sold}$$

Question 20

Which of the following transactions would NOT affect the inventory account under the perpetual system?

Accepted Answer

Payment of salaries to employees

Merchandising Operations, Inventory, and Accounting Information Systems: Study Notes & Practice Questions

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