Q: A company purchased 10 units at $$10, 25 units at 14$$, and 25 units at $18. If it sold 40 units using the weighted-average method, what is the cost assigned to cost of goods sold?

$$600 \text{ (40 units} \times \text{average cost per unit)} $$

Q: Which formula correctly calculates gross profit percentage?

$$\text{Gross Profit Percentage} = \frac{\text{Gross Profit}}{\text{Sales}} \times 100$$

Q: Which equation represents the cost-of-goods-sold model?

$$\text{Beg Inventory} + \text{Purchases} - \text{End Inventory} = \text{COGS}$$

Question 1

Which of the following best describes the relationship between inventory and cost of goods sold in a merchandising company?

Accepted Answer

Inventory is an asset on the balance sheet, and cost of goods sold is an expense on the income statement.

Question 2

A company purchased 10 units at $$10, 25 units at 14$$, and 25 units at $18. If it sold 40 units using the weighted-average method, what is the cost assigned to cost of goods sold?

Accepted Answer

$$600 	ext{ (40 units} 	imes 	ext{average cost per unit)} $$

Question 3

Under the perpetual inventory system, which journal entry is made when inventory is sold?

Accepted Answer

Debit Cost of Goods Sold; Credit Inventory

Question 4

Which inventory costing method results in the lowest taxable income when inventory costs are rising?

Accepted Answer

LIFO

Question 5

A company has beginning inventory of $$4,000, purchases of 16$$,000, and cost of goods sold of $15,000. What is the ending inventory?

Accepted Answer

$$5,000$$

Question 6

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

Accepted Answer

Freight-out

Question 7

If a company uses the lower-of-cost-or-market (LCM) rule and inventory’s market value falls below its historical cost, what is the correct accounting treatment?

Accepted Answer

Inventory is written down to its market value.

Question 8

Which formula correctly calculates gross profit percentage?

Accepted Answer

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

Question 9

Which inventory method is NOT permitted under International Financial Reporting Standards (IFRS)?

Accepted Answer

LIFO

Question 10

A company’s gross profit plus cost of goods sold equals:

Accepted Answer

Sales revenue

Question 11

Which of the following best describes the effect of ESG (Environmental, Social, and Governance) factors on inventory valuation?

Accepted Answer

ESG factors can decrease the value of inventory if demand falls due to environmental or health concerns.

Question 12

Which equation represents the cost-of-goods-sold model?

Accepted Answer

$$	ext{Beg Inventory} + 	ext{Purchases} - 	ext{End Inventory} = 	ext{COGS}$$

Question 13

Which inventory costing method provides the most up-to-date inventory cost on the balance sheet?

Accepted Answer

FIFO

Question 14

If a company’s inventory turnover ratio is high, what does this indicate?

Accepted Answer

The company is selling inventory rapidly.

Question 15

Which of the following is a key requirement of U.S. GAAP for inventory?

Accepted Answer

Inventory must be valued at the lower of cost or market.

Question 16

A company has beginning inventory of $$1,200, purchases of 6$$,300, and ending inventory of $1,500. What is the cost of goods sold?

Accepted Answer

$$6,000$$

Question 17

Which of the following is true about consigned goods?

Accepted Answer

Consigned goods out on consignment are included in the seller’s inventory.

Question 18

Which Excel function is commonly used to analyze inventory records by matching SKUs to descriptions and warehouse locations?

Accepted Answer

XLOOKUP

Question 19

If a company’s inventory is shipped under FOB shipping point, who pays the transportation costs?

Accepted Answer

The buyer

Question 20

Which of the following is a plausible effect of a LIFO liquidation?

Accepted Answer

Older, lower costs are shifted into cost of goods sold, potentially increasing net income.

Inventory and Cost of Goods Sold: Financial Accounting Study Guide

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