Deck 5: Inventory and Cost of Goods Sold

Question 1

All of the following are deducted from the purchase price of inventory in determining cost of goods sold except:

A) purchase returns
B) purchase allowances
C) freight in
D) purchase discounts

Answer 1

C

Question 2

Under a periodic inventory system,which of the following entries would record the purchase of merchandise on credit?

A) Debit Inventory and credit Accounts Payable
B) Credit Purchases and debit Cost of Goods Sold
C) Credit Sales and debit Accounts Receivable
D) Debit Purchases and credit Accounts Payable

Answer 2

D

Question 3

Using a perpetual inventory system,which of the following entries would record the cost of merchandise sold on credit?

A) Credit Sales and debit Accounts Receivable
B) Debit Cost of Goods Sold and credit Purchases
C) Debit Cost of Goods Sold and credit Inventory
D) Debit Inventory and credit Cost of Goods Sold

Answer 3

C

Question 4

On December 2,a customer returned merchandise,with a selling price of $1,200 purchased on account,to a department store.Ignoring cost of goods sold,which journal entry should the department store prepare? Assume no sales discount was offered for early payment.

A) Debit Sales Revenue for $1,200 and credit Accounts Receivable for $1,200.
B) Debit Sales Revenue for $1,200 and credit Cash for $1,200.
C) Debit Sales Revenue for $1,200 and credit Sales Returns and Allowances for $1,200.
D) Debit Sales Returns and Allowances for $1,200 and credit Accounts Receivable for $1,200.

Question 5

Which of the following would be included in the Cost of Goods Sold account on a merchandising company's income statement?

A) shipping costs from the manufacturer to the merchandiser
B) sales commissions
C) costs of advertising
D) sales taxes

Question 6

Given the following data,what is the cost of purchases?

A) $370,000
B) $465,000
C) $595,000
D) $475,000

Question 7

Technological advances in computers and inventory tracking have:

A) made perpetual inventory records less expensive to maintain
B) completely eliminated the need to physically count inventory
C) made journal entries unnecessary for inventory purchases
D) made perpetual inventory records more expensive to maintain

Question 8

The Tasty Shrimp Limited's warehouse was recently flooded.The controller has asked you to estimate the inventory loss.You have managed to salvage the following number from the general office for the month of July.Note the operation was closed on July 1^st for Canada Day.

Question 9

In a merchandising business,gross margin is equal to sales revenue minus:

A) the sum of cost of goods sold, operating expenses, and prepaid expenses
B) the sum of cost of goods sold and operating expenses
C) cost of goods sold
D) the sum of cost of goods sold and sales commissions

Question 10

Which of the following would be included in the Inventory account on a merchandising company's balance sheet?

A) advertising costs
B) delivery costs
C) shipping costs from the manufacturer to the merchandising company
D) sales commissions

Question 11

Perpetual inventory records provide information helpful in making all the following decisions except:

A) whether immediate delivery of merchandise is possible
B) when to reorder
C) how quickly items of merchandise are selling
D) whether to extend credit to a customer

Question 12

Under a perpetual inventory system,which of the following entries would record the purchase of merchandise on credit?

A) Debit Inventory and credit Accounts Payable
B) Credit Purchases and Debit Cost of Goods Sold
C) Credit Sales and debit Accounts Receivable
D) Debit Purchases and credit Accounts Payable

Question 13

The following data are for Upholstery Limited for January 2014: What is the company's estimated cost of goods sold for the month?

A) $59,500
B) $25,500
C) $42,000
D) $15,000

Question 14

The largest expense category on the income statement of most merchandising companies is:

A) cost of goods sold
B) other expenses
C) selling expenses
D) administrative expenses

Question 15

If a company uses a periodic inventory system,it will maintain all of the following accounts except:

A) Cost of Goods Sold
B) Purchases
C) Sales
D) Inventory

Question 16

A business offers credit terms of 2/15,n/30.These terms indicate that:

A) the total amount of the invoice must be paid within 15 days of the invoice date
B) a discount of 2% can be taken if the invoice is paid within 15 days of the invoice date
C) the buyer can take a 2% discount if the bill is paid within 30 days of the invoice date
D) no discount is offered for early payment

Question 17

A company has gross revenue of $502,000; sales discounts of $2,900; and sales returns and allowances of $3,300.Net revenue is:

A) $495,800
B) $498,700
C) $499,100
D) $502,000

Question 18

If a company is using a perpetual inventory system,the balance in its inventory account three-quarters of the way through an accounting period would be equal to:

A) the total of the beginning inventory plus goods purchased during the accounting period
B) the inventory on hand at the beginning of the period
C) the amount of inventory on hand at that date
D) the amount of goods purchased during the period

Question 19

King Size International buys beds from a manufacturer for sale overseas.A shipment of beds to King Size was received slightly damaged.The manufacturer agreed to take an extra 10% off of its invoice price to King Size if it will keep and sell the beds to its customers.In this situation,King Size has received a:

A) purchase return
B) purchase discount
C) purchase allowance
D) sales allowance

Question 20

A perpetual inventory system offers all the following advantages except:

A) inventory balances are always current
B) it enhances internal control
C) it is less expensive than a periodic system
D) it helps salespeople determine whether there is a sufficient supply of inventory on hand to fill customer orders

Question 21

Given the following data,what is the cost of beginning inventory?

A) $1,485,000
B) $415,000
C) $1,035,000
D) $205,000

Question 22

Given the following data,what is the cost of goods sold?

A) $690,000
B) $770,000
C) $1,290,000
D) $1,210,000

Question 23

The following data pertain to Stainless Steel Enterprises for the year ended December 31,2017:
b.Compute the balance in the inventory account on December 31,2017.

Question 24

Given the following data,calculate the cost of goods sold for the 04/15 sale using the weighted-average method for a perpetual inventory system,rounding to the nearest dollar.(Do not round in the process of your calculations,only round your final answer.)

A) $200
B) $230
C) $280
D) $600

Question 25

What is the most important asset of a merchandising business?

Question 26

Historically,perpetual inventory systems have been used to account for inventory items with a low unit cost.

Question 27

Given the following data,calculate the cost of goods sold for the 11/15 sale using the weighted-average method for a perpetual inventory system,rounding to the nearest dollar.(Do not round in the process of your calculations,only round your final answer.)

A) $720
B) $771
C) $785
D) $1,920

Question 28

Given the following data,calculate the cost of ending inventory using the weighted-average method for a periodic inventory system,rounding to the nearest dollar.(Do not round in the process of your calculations,only round your final answer.)

A) $720
B) $619
C) $581
D) $450

Question 29

The following data pertain to Home Office Company for the year ended December 31,2017:
b.Compute the balance in the inventory account on December 31,2017.

Question 30

The following information is available for Don't Pay a Cent Corporation for the year ended December 31,2017:
Calculate the following for Don't Pay a Cent Corporation:
b.Net purchases for 2017.

Question 31

In a merchandising business,gross margin is the difference between sales revenue and the cost of goods sold.

Question 32

Given the following data,what is the weighted-average cost of ending inventory rounded to the nearest whole dollar? (Do not round in the process of your calculations,only round your final answer.)

A) $300
B) $200
C) $193
D) $180

Question 33

Given the following data,calculate the cost of ending inventory using the FIFO costing method:

A) $400
B) $545
C) $480
D) $560

Question 34

Given the following data,what is cost of goods sold as determined under the FIFO method?

A) $6,400
B) $5,250
C) $4,600
D) $7,000

Question 35

What is the major expense shown on the income statement for a merchandising business?

Question 36

Sales commissions are not normally included in the cost of goods sold account.

Question 37

Freight-in is the transportation cost,paid by the buyer,to move goods from the seller to the buyer.

Question 38

In a perpetual inventory system,businesses maintain a continuous record for each inventory item.

Question 39

Sales taxes paid by a merchandising company on its sales are normally included in the cost of goods sold account.

Question 40

A purchase allowance is a decrease in the cost of purchases because the purchaser returned goods to the supplier.

Question 41

FIFO income typically is less realistic compared to the net income under weighted-average cost.

Question 42

State which of the following inventory methods would best attain the goals of management.Indicate your answer by writing the proper letter in the blank beside each specific goal.
a.FIFO
b.Weighted-averaged.
c.Specific identification

Question 43

A company may use more than one type of inventory method.For example it may use specific identification for one type of inventory and FIFO for another.

Question 44

FIFO tends to decrease cost of goods sold when:

A) costs are constant
B) costs are decreasing
C) costs are increasing
D) taxes are decreasing

Question 45

The specific unit cost method is frequently used for items with common characteristics,such as gallons of paint.

Question 46

When using the weighted-average cost method to determine the cost of inventory sold,the weighted-average cost per unit is calculated as the:

A) cost of goods available for sale divided by the number of units available for sale
B) cost of goods sold divided by the average number of units in inventory
C) cost of goods sold divided by the number of units sold
D) cost of goods in ending inventory divided by the number of units in ending inventory

Question 47

Inventory data for Freezer Burn Corporation for the year ended December 31,2017,are as follows:
Compute the perpetual ending inventory balance on December 31,2017,using:
a.FIFO
b.Weighted-average

Question 48

FIFO tends to increase cost of goods sold when:

A) costs are increasing
B) costs are declining
C) costs are constant
D) FIFO will always yield the lowest possible cost of goods sold

Question 49

The disclosure principle requires that management prepare financial reports that disclose all of the following types of information except:

A) the method of inventory costing used
B) forecasts of expected future earnings to help investors decide whether to invest in the company
C) information that facilitates comparison with other companies' financial reports
D) information that is relevant to decision making

Question 50

When the FIFO method is used,cost of goods sold is assumed to consist of:

A) the most recently purchased units
B) the units with the lowest per unit cost
C) the units with the highest per unit cost
D) the oldest units

Question 51

When using the weighted-average cost method to determine the cost of inventory sold,the weighted-average cost per unit is calculated as the cost of goods available for sale divided by the number of units available for sale.

Question 52

State some guidelines a company's management could use to determine the most desirable inventory costing method.

Question 53

FIFO uses "old" inventory costs against revenue.

Question 54

Inventory data for Hot Buys Company for January 2017 are as follows:
Using FIFO,compute ending inventory as of January 31,2017,and determine cost of goods sold for January.

Question 55

In a time of increasing inventory costs,FIFO gives us a higher COGS number compared to the weighted average method.

Question 56

The disclosure principle requires that management prepare financial reports that disclose all of the following types of information except:

A) the method of inventory costing used
B) forecasts of expected future earnings to help investors decide whether to invest in the company
C) information that facilitates comparison with other companies' financial reports
D) information that is relevant to decision making

Question 57

If year-end inventory is reduced from cost to a lower net realizable value,which of the following accurately depicts the results?

A) Year-end inventory is reduced and cost of goods sold is reduced by the same amount.
B) Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount.
C) The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.
D) Cost of goods sold is increased and beginning inventory of the next period is decreased by the same amount.

Question 58

Given the following data,calculate the cost of goods sold for the period using the weighted-average method for a periodic inventory system,rounding to the nearest dollar.(Do not round in the process of your calculations,only round your final answer.)

A) $960
B) $966
C) $980
D) $2,500

Question 59

Ending inventory under FIFO reflects the cost of goods most recently acquired.

Question 60

Consider the following data: Which of the following depicts the proper account balance after the application of the LCNRV rule?

A) Ending Inventory balance will be $119,000.
B) Ending Inventory balance will be $115,000.
C) Cost of Goods Sold will be $161,000.
D) Cost of Goods Sold will be $169,000.

Question 61

The gross margin percentage is one of the most closely watched profitability measures.It can be calculated by:

A) dividing cost of goods sold by average inventory
B) dividing gross margin by net sales revenue
C) dividing gross margin by net accounts receivable
D) dividing cost of goods sold by net sales revenue

Question 62

Victory Stables Ltd.for the year ended December 31,2016,are as follows: The Gross Profit percentage for 2016 is:

A) 0.80
B) 1.57
C) 0.20
D) 1.83

Question 63

Sales Company Ltd.paid $10 wholesale for one unit of inventory for resale in the retail market.The same inventory can now be purchased for $9.The retail sales price of the inventory is $13,however,it normally costs $2 to sell each unit.Using the lower-of-cost-and-net-realizable-value rule the inventory would be reported on Sales Company Ltd.'s balance sheet at:

A) $9
B) $10
C) $11
D) $13

Question 64

Inventory turnover is calculated by dividing average inventory by cost of goods sold.

Question 65

The following information is available for Digital Image Corporation for the year ended December 31,2016:
Ending inventory:
a.Compute gross margin as it would appear on the income statement valuing ending inventory at historical cost.
b.Compute gross margin as it would appear on the income statement valuing ending inventory at lower-of-cost-or-net-realizable-value.

Question 66

Roughrider Ltd.(Roughrider)uses the lower of cost and net realizable value rule to value its football equipment inventory.Roughrider defines market as net realizable value.Roughrider's inventory on January 31,2017 had a cost of $1,200,000 and an NRV of $1,125,000.
Required:
a.By how much should Roughrider's inventory be written down?
b.Prepare the journal entry that Roughrider should prepare to record the write-down.
c.What amount should be reported for inventory on Roughrider's January 31,2017 balance sheet?

Question 67

The comparability principle in accounting means that a company must perform strictly proper accounting only for items and transactions that are significant to the financial statements of a business.

Question 68

The Key West Group uses the lower of cost and net realizable value rule to value its kayak inventory.The Kayaks in inventory were purchased on January 1,2016 for $12,000.At year end December 31,2016 the net realizable value of Key West's inventory dropped to $9,000.At the end of 2017 due to a shortage of Kayaks this inventory increased in value to $15,000.
Required:
Prepare the required journal entries (if any)required at the 2016 and 2017 year end.

Question 69

The gross margin percentage can be calculated by dividing cost of goods sold by net sales revenue.

Question 70

A firm can change their inventory costing method if it provides more reliable and relevant information.

Question 71

The lower-of-cost-or-net-realizable-value rule applies only when a company uses the FIFO inventory valuation method.

Question 72

The following data are available for Big Box Corporation:
Compute:
a.Net purchases
b.Net sales
c.Cost of goods sold
d.Gross margin
e.Gross margin rate and allowances
f.Net income

Question 73

Inventory turnover is calculated by:

A) dividing average inventory by cost of goods sold
B) dividing cost of goods sold by average inventory
C) multiplying average inventory by cost of goods sold
D) subtracting ending inventory from cost of goods sold

Question 74

A change in inventory costing method should be applied prospectively.

Question 75

Data for Flat Panel Ltd.for the year ended December 31,2016,are as follows: Inventory turnover for 2016 is:

A) 2.40
B) 2.25
C) 1.07
D) 3.47

Question 76

When applying the lower-of-cost-or-net-realizable-value rules to ending inventory valuation,net realizable value generally refers to the cost at which the company could sell a unit of inventory.

Question 77

A sharp decrease in the gross profit percentage is a potential indicator of trouble.

Question 78

Average inventory is equal to:

A) beginning inventory plus cost of goods sold divided by two
B) beginning inventory plus ending inventory divided by two
C) cost of goods sold plus purchases divided by two
D) ending inventory plus cost of goods sold divided by two

Question 79

Previously written down inventory does not need to be reassessed as it is at its lowest value.

Question 80

The gross margin rate is equal to:

A) net sales revenue minus cost of goods sold
B) gross margin divided by net sales revenue
C) net sales revenue minus gross margin on sales
D) cost of goods sold divided by net sales revenue