Q: Which of the following formulas correctly calculates Cost of Goods Sold (COGS) under a periodic inventory system?

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

Question 1

Which of the following best describes the difference between a merchandising company and a manufacturing company in terms of inventory accounts?

Accepted Answer

A merchandising company has one inventory account, while a manufacturing company has three: raw materials, work in process, and finished goods.

Question 2

If a company purchases goods f.o.b. shipping point, when does the company recognize the inventory?

Accepted Answer

When the goods are shipped by the seller and loaded onto the truck.

Question 3

Which of the following costs should NOT be included in the cost of inventory?

Accepted Answer

Marketing expenses for selling the finished goods.

Question 4

Gard Company had $$200,000 of basketballs on hand at year-end. 25$$,000 of basketballs were purchased f.o.b. shipping point and in transit, and $22,000 of basketballs were sold f.o.b. destination and in transit. What amount should Gard report as its December 31 basketball inventory?

Accepted Answer

$225,000

Question 5

Which inventory cost flow assumption is most likely to result in the highest net income during a period of rising prices?

Accepted Answer

FIFO (First-In, First-Out)

Question 6

A company uses the periodic inventory system and the weighted-average cost method. If the company has 1,000 units at $$10 each and purchases 2,000 units at 12 $$each, what is the weighted-average cost per unit?

Accepted Answer

$11.33

Question 7

Under the LIFO method, which units are assumed to be sold first?

Accepted Answer

The newest units in inventory

Question 8

Which of the following statements about the LIFO reserve is correct?

Accepted Answer

It is the difference between inventory reported using FIFO and inventory reported using LIFO.

Question 9

A company using LIFO for external reporting and FIFO for internal reporting must disclose which of the following?

Accepted Answer

The LIFO reserve or the replacement cost of inventory.

Question 10

Which of the following is a potential disadvantage of the specific identification method?

Accepted Answer

It may allow a company to manipulate net income.

Question 11

Under the dollar-value LIFO method, how are increases and decreases in inventory measured?

Accepted Answer

By the total dollar value of the inventory pool.

Question 12

If a company experiences a LIFO liquidation, what is the likely effect on net income and taxes?

Accepted Answer

Net income increases and taxes increase.

Question 13

Which of the following formulas correctly calculates Cost of Goods Sold (COGS) under a periodic inventory system?

Accepted Answer

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

Question 14

A company has the following inventory balances: Materials and supplies $$1,414 million, Work in process 674 $$million, Finished goods $3,410 million. What is the total inventory reported on the balance sheet?

Accepted Answer

$5,498 million

Question 15

Which of the following best describes the main advantage of the dollar-value LIFO method?

Accepted Answer

It allows a broader range of goods in the inventory pool and protects LIFO layers from erosion.

Question 16

If prices increase by 20% during the year and ending inventory at current prices is $26,400, what is the ending inventory at base-year prices?

Accepted Answer

$22,000

Question 17

Which of the following is NOT a reason companies may use FIFO or average cost for internal reporting and LIFO for external reporting?

Accepted Answer

LIFO is required for all internal reporting.

Question 18

Which of the following statements is true regarding the periodic and perpetual inventory systems when using FIFO?

Accepted Answer

The ending inventory and cost of goods sold will be the same under both systems.

Question 19

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 20

Which of the following is a product cost that should be included in inventory valuation?

Accepted Answer

Freight-in costs

Valuation of Inventories: A Cost-Basis Approach (Intermediate Accounting, Chapter 7)

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