Q: A company purchases inventory for $$10,000, receives a 2% discount, pays 500 in $$shipping, and $200 in import duties. What is the total cost of inventory recorded?

$$10,000 - (0.02 \times 10,000) + 500 + 200 = 10$$,500

Q: Which formula correctly calculates inventory turnover?

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

Q: A company has beginning inventory of $$8,000, ending inventory of 12$$,000, and cost of goods sold of $40,000. What is the days' sales in inventory? (Use 365 days)

$$\frac{12,000}{40,000} \times 365 = 109.5$$ days

Q: A company uses the weighted average method in a perpetual system. It has 10 units at $$5 each, buys 20 units at 7 $$each, then sells 15 units. What is the weighted average cost per unit after the purchase?

$$\frac{(10 \times 5) + (20 \times 7)}{10 + 20} = \frac{50 + 140}{30} = \6.33$

Question 1

Which of the following items should NOT be included in a company's merchandise inventory at year-end?

Accepted Answer

Goods held on consignment for another company

Question 2

A company purchases inventory for $$10,000, receives a 2% discount, pays 500 in $$shipping, and $200 in import duties. What is the total cost of inventory recorded?

Accepted Answer

$$10,000 - (0.02 	imes 10,000) + 500 + 200 = 10$$,500

Question 3

Under the perpetual inventory system, which inventory costing method assigns the most recent costs to cost of goods sold?

Accepted Answer

Last-In, First-Out (LIFO)

Question 4

A retailer has inventory with a cost of $$5,000 and a net realizable value of 4$$,500. According to the lower of cost or market rule, what amount should be reported on the balance sheet?

Accepted Answer

$4,500

Question 5

If ending inventory is understated by $2,000, what is the effect on net income for the current period?

Accepted Answer

Net income is understated by $2,000

Question 6

Which formula correctly calculates inventory turnover?

Accepted Answer

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

Question 7

A company has beginning inventory of $$8,000, ending inventory of 12$$,000, and cost of goods sold of $40,000. What is the days' sales in inventory? (Use 365 days)

Accepted Answer

$$\frac{12,000}{40,000} 	imes 365 = 109.5$$ days

Question 8

Which inventory costing method will result in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Question 9

A company uses the weighted average method in a perpetual system. It has 10 units at $$5 each, buys 20 units at 7 $$each, then sells 15 units. What is the weighted average cost per unit after the purchase?

Accepted Answer

$$\frac{(10 	imes 5) + (20 	imes 7)}{10 + 20} = \frac{50 + 140}{30} = \6.33$

Question 10

Which of the following statements about goods on consignment is correct?

Accepted Answer

Consignor includes consigned goods in their inventory

Question 11

If a company uses LIFO for tax reporting, what must it also do according to the LIFO conformity rule?

Accepted Answer

Use LIFO for financial reporting

Question 12

A company has the following data: Beginning inventory = $$4,000, Purchases = 16$$,000, Ending inventory = $6,000. What is the cost of goods sold?

Accepted Answer

$$4,000 + 16$$,000 - $$6,000 = 14$$,000

Question 13

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

Accepted Answer

Advertising expenses

Question 14

If a company overstates its ending inventory, what is the effect on the next period's cost of goods sold?

Accepted Answer

Cost of goods sold will be overstated

Question 15

Which method assigns the actual cost of each specific item to cost of goods sold?

Accepted Answer

Specific Identification

Question 16

A company estimates ending inventory using the gross profit method. If sales are $50,000 and the gross profit rate is 40%, what is the estimated cost of goods sold?

Accepted Answer

$$50,000 	imes 0.60 = 30$$,000

Question 17

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

Accepted Answer

FIFO will result in higher cost of goods sold and lower net income

Question 18

A company has 100 units in inventory at a cost of $$8 each. The replacement cost is 6 $$per unit, and the expected selling price is $$7 per unit with 1 $$per unit selling costs. What is the value of inventory under lower of cost or net realizable value?

Accepted Answer

$$100 	imes (7 - 1) = 600$$

Question 19

Which of the following is a reason why companies use inventory estimation methods such as the retail inventory or gross profit method?

Accepted Answer

To avoid taking a physical count when inventory is lost or destroyed

Inventories and Cost of Sales: Chapter 6 Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards