Q: Which of the following is the correct formula for calculating Cost of Goods Sold (COGS) under a periodic system?

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

Question 1

Which accounting principle requires a company to provide enough relevant information in its financial statements for outsiders to make informed decisions, such as disclosing the inventory costing method used?

Accepted Answer

Disclosure principle

Question 2

A company uses a perpetual inventory system. On August 1, it has 2 units at $$350 each. It purchases 4 more units at 360 $$each on August 5. What is the weighted-average unit cost after the August 5 purchase? (Round to two decimal places.)

$$	ext{Weighted-average unit cost} = \frac{(2 	imes 350) + (4 	imes 360)}{2 + 4}$$

Accepted Answer

$$356.67$$

Question 3

Under the FIFO method in a period of rising inventory costs, which of the following is true regarding Cost of Goods Sold (COGS) and ending inventory?

Accepted Answer

COGS is lowest and ending inventory is highest

Question 4

A company’s merchandise inventory originally cost $$3,000. By year-end, the replacement cost is 2$$,200. According to the lower-of-cost-or-market rule, what is the correct journal entry to record the write-down?

Accepted Answer

Debit Cost of Goods Sold $$800; Credit Merchandise Inventory 800$$

Question 5

If ending inventory is overstated by $5,000, what is the effect on Cost of Goods Sold (COGS) and Net Income for the current period?

Accepted Answer

COGS is understated; Net Income is overstated

Question 6

A company uses the perpetual LIFO method. On August 15, it sells 4 units. The most recent purchase before this sale was 4 units at $360 each. What is the cost assigned to this sale?

Accepted Answer

$$1,440$$

Question 7

Which inventory costing method is most appropriate for a jewelry store selling unique, high-value items?

Accepted Answer

Specific identification

Question 8

Given the following data for a company: Beginning Inventory = $$80,000, Ending Inventory = 120$$,000, Cost of Goods Sold = $$500,000. What is the inventory turnover ratio?

$$	ext{Average Inventory} = \frac{80,000 + 120,000}{2}$$
$$	ext{Inventory Turnover} = \frac{500,000}{	ext{Average Inventory}}$

Accepted Answer

5.0 times

Question 9

Which of the following statements about the perpetual and periodic inventory systems is correct?

Accepted Answer

The perpetual system continuously updates inventory and COGS with each transaction.

Question 10

A company’s ending inventory is understated by $1,200. What is the effect on COGS and Net Income for the current period?

Accepted Answer

COGS is overstated; Net Income is understated

Question 11

Under a periodic inventory system using LIFO, which costs are assigned to Cost of Goods Sold?

Accepted Answer

The most recent costs available during the period

Question 12

Which of the following is the correct formula for calculating Cost of Goods Sold (COGS) under a periodic system?

Accepted Answer

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

Question 13

If a company switches from FIFO to LIFO solely to report higher profits, which accounting principle is being violated?

Accepted Answer

Consistency

Question 14

A company’s inventory turnover ratio is 8.70. What is the average number of days inventory is held before sale?

$$	ext{Days' Sales in Inventory} = \frac{365}{8.70}$$

Accepted Answer

42 days

Question 15

Which of the following best describes the effect of an inventory write-down under the lower-of-cost-or-market rule?

Accepted Answer

Decreases inventory and increases COGS

Question 16

Which of the following is NOT a reason for performing a physical count of inventory even when using a perpetual system?

Accepted Answer

To update the cost flow assumption

Question 17

A company using the perpetual FIFO method sells 10 units on August 31. The most recent purchase before this sale was 12 units at $380 each. What is the cost assigned to the 10 units sold?

Accepted Answer

$$3,760$$

Question 18

Which of the following is a correct journal entry for a sale of goods on account for $$2,000, with a perpetual FIFO cost of 1$$,420?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Sales Revenue 2$$,000; Debit Cost of Goods Sold $$1,420; Credit Merchandise Inventory 1$$,420

Merchandise Inventory: Principles, Costing Methods, and Financial Statement Effects

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