Q: Which formula correctly calculates the cost of goods sold (COGS) for the income statement?

$$\text{COGS} = \text{Number of units of inventory sold} \times \text{Cost per unit of inventory}$$

Q: Which formula is used to calculate the gross profit percentage?

$$\text{Gross profit percentage} = \dfrac{\text{Gross profit}}{\text{Net sales revenue}}$$

Q: Which formula is used to calculate inventory turnover?

$$\text{Inventory turnover} = \dfrac{\text{Cost of goods sold}}{\text{Average inventory}}$$

Question 1

Which of the following accounts is present in a merchandising company's financial statements but NOT in a service company's financial statements?

Accepted Answer

Inventory

Question 2

A company purchases 100 units of inventory at $$5 each and later purchases 200 units at 6 $$each. If the company sells 150 units, which inventory costing method will result in the highest cost of goods sold when prices are rising?

Accepted Answer

LIFO

Question 3

Under the perpetual inventory system, which of the following is TRUE regarding the recording of a sale?

Accepted Answer

Both the revenue and the cost of goods sold are recorded at the time of sale.

Question 4

Family Dollar Stores has 300 towels in stock at $$3 each. If 200 towels are sold for 5 $$each, what is the gross profit from the sale?

Accepted Answer

$400

Question 5

Which formula correctly calculates the cost of goods sold (COGS) for the income statement?

Accepted Answer

$$	ext{COGS} = 	ext{Number of units of inventory sold} 	imes 	ext{Cost per unit of inventory}$$

Question 6

A company uses the periodic inventory system. Which statement is correct?

Accepted Answer

Inventory is counted at least once a year, and records are updated at that time.

Question 7

Which inventory costing method is most appropriate for a business selling unique items such as antique furniture?

Accepted Answer

Specific identification

Question 8

Given the following inventory data: Beginning inventory: 10 units @ $$10; Purchases: 25 units @ 14$$, 25 units @ $18; Ending inventory: 20 units. What is the average cost per unit?

Accepted Answer

$15

Question 9

If inventory costs are rising, which method will result in the highest ending inventory value?

Accepted Answer

FIFO

Question 10

Hazelwood Surplus has the following purchases: 75 units @ $$16, 95 units @ 18$$, 165 units @ $$20, 35 units @ 21. If 318 $$units are sold, what is the average cost per unit? (Round to two decimal places)

Accepted Answer

$18.77

Question 11

Under the lower-of-cost-or-market (LCM) rule, if inventory was purchased for $$3,000 but its replacement cost at year-end is 2$$,000, what value should be reported on the balance sheet?

Accepted Answer

$2,000

Question 12

Which formula is used to calculate the gross profit percentage?

Accepted Answer

$$	ext{Gross profit percentage} = \dfrac{	ext{Gross profit}}{	ext{Net sales revenue}}$$

Question 13

Cola Company made sales of $$35,376 million and had cost of goods sold of 15$$,437 million. What is the gross profit percentage?

Accepted Answer

56.4%

Question 14

Which formula is used to calculate inventory turnover?

Accepted Answer

$$	ext{Inventory turnover} = \dfrac{	ext{Cost of goods sold}}{	ext{Average inventory}}$$

Question 15

If a company has beginning inventory of $$2,100, purchases of 6$$,300, and ending inventory of $1,500, what is the cost of goods sold?

Accepted Answer

$6,000

Question 16

Which inventory costing method results in the lowest gross profit when inventory costs are increasing?

Accepted Answer

LIFO

Question 17

Under U.S. GAAP, what happens after inventory is written down to market value under the lower-of-cost-or-market rule?

Accepted Answer

The write-down cannot be reversed, even if market value increases.

Question 18

A company records a purchase return of $500 in merchandise under the perpetual system. What is the correct journal entry?

Accepted Answer

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

Question 19

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

Accepted Answer

FIFO

Inventory & Cost of Goods Sold: Accounting Methods and Analysis

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