Deck 6: Cost of Goods Sold and Inventory

Question 1

When merchandise is sold F.O.B.destination,the seller is responsible for the shipping costs.

Answer 1

True

Question 2

If cost of goods sold does not equal the cost of merchandise purchased during the period,an adjustment must be made to correct the error.

Answer 2

False

Question 3

Cost of goods sold is the difference between costs of goods available for sale and ending inventory.

Answer 3

True

Question 4

Cost of goods sold represents an outflow of a resource,inventory,which is caused by the sale of products.

Question 5

Under the periodic inventory system,a physical inventory must be taken to determine cost of goods sold.

Question 6

Sales discounts decrease the cost of inventory acquired.

Question 7

A LIFO reserve represents the amount by which cost of goods sold on a FIFO basis exceeds the cost of goods sold on a LIFO basis for the current year.

Question 8

The weighted average cost is calculated by adding the units' costs from each purchase and dividing by the number of purchases.

Question 9

With the perpetual inventory system,the inventory account is updated after each sale or purchase.

Question 10

During periods of stable purchase prices,FIFO produces the highest ending inventory relative to the other inventory costing methods.

Question 11

For a merchandising company,the cost of goods sold is subtracted from net sales to arrive at gross profit.

Question 12

Under a perpetual inventory system,each time goods are purchased,the inventory account is transferred to sales revenue.

Question 13

Under the LIFO method of inventory costing,the units in the ending inventory represent the most recent purchase(s).

Question 14

During periods of declining purchase prices,LIFO produces the lowest amount of ending inventory relative to the other inventory costing methods.

Question 15

The lower of cost or net realizable value (LCNRV)rule violates the historical cost principle.

Question 16

Under the FIFO method of inventory costing,the units in the ending inventory represent the oldest purchase(s).

Question 17

A LIFO liquidation occurs when a company sells more units than it buys during the period.

Question 18

The buyer must include goods purchased F.O.B.shipping point in its inventory account if the goods are still in transit.

Question 19

A company using a periodic inventory system must total the selling prices of the units on hand at the end of the period in order to value the ending inventory.

Question 20

The difference between the FIFO,LIFO,and average cost methods is that each of these methods of inventory costing makes a specific assumption about the flow of costs.

Question 21

The weighted average cost per unit must be continually updated under the perpetual inventory system.

Question 22

During periods of rising prices,the ____________________ method results in the cost of goods sold expense on the income statement being a close approximation of the replacement cost of the goods sold.

Question 23

When the shipping terms are F.O.B.destination,the buyer must record transportation costs as an additional cost of acquiring the inventory under the perpetual inventory system.

Question 24

The excess of an inventory's value stated on a FIFO basis over its value stated on a LIFO basis is called a(n)____________________.

Question 25

The inventory turnover ratio is a measure of how many times during a period a company sells off its inventory.

Question 26

The inventory of a(n)____________________ consists of three categories: raw materials,work-in-process,and finished goods.

Question 27

Under the periodic method,the information on sales can be combined within any period because all purchases are assumed to occur before any sales transactions.

Question 28

Under a periodic inventory system,the purchases account accumulates the cost of the inventory acquired during the period.

Question 29

A loss in inventory value caused by application of the lower of cost or net realizable value (LCNRV)rule is recorded in a "Loss from Impairment" account.

Question 30

The amount recognized on the balance sheet as the cost of inventory will ultimately be recognized as a(n)____________________.

Question 31

If ending inventory is understated,then cost of goods sold is understated.

Question 32

Shipping terms of F.O.B.destination means that the shipping costs are paid by the ______.

Question 33

The _______________ method most closely approximates replacement cost of inventory on the balance sheet.

Question 34

Cost of goods sold is equal to beginning inventory plus the net cost of purchases minus _____.

Question 35

When a company using LIFO experiences a partial or complete liquidation of its older,lower-priced inventory,its gross margin will be ____________________ for the period.

Question 36

The inventory turnover ratio is defined as cost of goods sold divided by average inventory.

Question 37

Under the _______________ inventory system,the inventory account is updated after each purchase or sale.

Question 38

A purchases account is not needed under a periodic inventory system.

Question 39

If ending inventory is overstated,then net income is overstated as well.

Question 40

Shipping terms of ____________________ mean that the buyer pays shipping costs.

Question 41

Match the terms with the descriptions related to merchandise sales and purchases.

-shipping costs paid to acquire merchandise

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 42

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.

-cost of material,labor,and other production-related costs incurred to date in unfinished goods

A)merchandise inventory
B)raw materials
C)work-in-process
D)finished goods
E)cost of goods sold

Question 43

Accountants define the market value of inventory as its ____________________.

Question 44

A company can calculate its average days to sell inventory by dividing 365 days per year by its _____.

Question 45

Under the periodic inventory system,all purchases are assumed to occur before any ______.

Question 46

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.

-cost of completed,unsold items

A)merchandise inventory
B)raw materials
C)work-in-process
D)finished goods
E)cost of goods sold

Question 47

Match the terms with the descriptions related to merchandise sales and purchases.

-shipping costs paid by buyer

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 48

Under a periodic inventory system,the ____________________ account accumulates the cost of inventory acquired during the period.

Question 49

A departure from the cost basis of accounting may be necessary when the ____________________ of the inventory is less than its cost to the company.

Question 50

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.

-costs to purchase goods ready to sell

A)merchandise inventory
B)raw materials
C)work-in-process
D)finished goods
E)cost of goods sold

Question 51

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.

-cost of ingredients used to make a product

A)merchandise inventory
B)raw materials
C)work-in-process
D)finished goods
E)cost of goods sold

Question 52

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers.

-costs of completed items that have been sold to customers

A)merchandise inventory
B)raw materials
C)work-in-process
D)finished goods
E)cost of goods sold

Question 53

The understatement of ending inventories in one period leads to a(n)____________________ of cost of goods sold in the same period.

Question 54

An overstatement error in the inventory account in the current period will result in an understatement of ____________________ in the subsequent period.

Question 55

Match the terms with the descriptions related to merchandise sales and purchases.

-relies on a count of inventory on the last day of the year to determine the amount on hand

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 56

Under a periodic inventory system,shipping costs are not charged to the inventory asset account.Instead,such costs are charged to the ____________________ account.

Question 57

The ratio of a company's cost of goods sold to its average inventory is called its __________.

Question 58

Match the terms with the descriptions related to merchandise sales and purchases.

-seller responsible for the cost of delivering the merchandise to the buyer

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 59

Under the periodic inventory system,net purchases = purchases + ______________ - purchase discounts - purchase returns and allowances.

Question 60

Match the terms with the descriptions related to merchandise sales and purchases.

-requires updating of the inventory account at the time of each purchase and each sale

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 61

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are rising; profits are higher under this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 62

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-freight costs incurred by the seller to ship goods to its customers

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 63

Match the terms with the descriptions related to merchandise sales and purchases.

-paid for merchandise outside of the discount period

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 64

Match the terms with the descriptions related to merchandise sales and purchases.

-granted a customer a credit on balance due for goods that were returned

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 65

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are declining; ending inventory is lower with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 66

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are declining; income taxes are higher with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 67

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are declining; gross margin is higher with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 68

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-returned goods to the seller

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 69

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-invoice price paid for resale goods

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 70

Match the terms with the descriptions related to merchandise sales and purchases.

-purchased merchandise on credit

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 71

Match the terms with the descriptions related to merchandise sales and purchases.

-recorded cash sales for the day

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 72

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are rising; ending inventory best approximates replacement cost with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 73

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are rising; ending inventory is lower with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 74

Match the terms with the descriptions related to merchandise sales and purchases.

-gave a customer a cash refund

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 75

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are rising; cost of goods sold is lower with this method.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 76

Match the terms with the descriptions related to merchandise sales and purchases.

-sold merchandise on credit to customers

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense

Question 77

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-paid for purchased goods within the discount period

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 78

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-Prices are declining; ending inventory with this method falls between the amounts for the other two methods.

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 79

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. (Choices may be used more than once.)

-freight costs incurred by the buyer to ship goods to its place of business

A)added to inventory cost
B)subtracted from inventory cost
C)not an inventory cost

Question 80

Match the terms with the descriptions related to merchandise sales and purchases.

-collected cash from a customer for payment within the discount period

A)transportation-in
B)perpetual inventory system
C)net purchases
D)F.O.B. destination
E)cost of goods available for sale
F)periodic inventory system
G)F.O.B. shipping point
H)delivery expense