Deck 6: Inventory Cost of Goods Sold

Question 1

Two accounts that appear on the financial statements of a merchandising company but are NOT needed by a service company are:

A)cost of goods sold and depreciation.
B)cost of goods sold and net income.
C)cost of goods sold and inventory.
D)inventory and depreciation.

Answer 1

C

Question 2

Under a perpetual inventory system,when a sale is made,the seller needs to prepare:

A)no journal entry.
B)one journal entry only.
C)two journal entries.
D)three journal entries.

Answer 2

C

Question 3

In a perpetual inventory system,a business maintains a running record of the number of units bought,sold and on hand for each inventory item.

Answer 3

True

Question 4

Freight in is accounted for as a delivery expense.

Question 5

Which is the CORRECT order for items to appear on the income statement?

A)sales revenue,operating expenses,gross profit,net income
B)sales revenue,gross profit,net income,operating expenses
C)sales revenue,gross profit,cost of goods sold,operating expenses
D)sales revenue,cost of goods sold,gross profit,operating expenses

Question 6

The cost of inventory shifts from asset to expense when the seller fulfills its contract with the customer,delivers the goods to the buyer and recognizes revenue.

Question 7

Inventory is reported on the balance sheet at the selling price of the inventory still on hand.

Question 8

The cost of inventory that is still on hand is called:

A)cost of goods sold,an expense that appears on the balance sheet.
B)inventory,a long-term asset that appears on the balance sheet.
C)inventory,a current asset that appears on the balance sheet.
D)purchases,a current asset that appears on the balance sheet.

Question 9

Since a perpetual inventory system continuously updates the inventory account,a physical inventory count is not necessary to prove the inventory records.

Question 10

A periodic inventory system:

A)is used for inexpensive goods.
B)is used when inventory cannot be controlled by visual inspection.
C)keeps a running record of inventory on hand.
D)is used for small,low-value items.

Question 11

Sales revenue is based on the ________ of the inventory,while cost of goods sold is based on the ________ of the inventory.

A)cost;sale price
B)cost;fair market value
C)sale price;retail price
D)sale price;cost

Question 12

The cost of the inventory that a business has sold to customers is called:

A)inventory.
B)cost of goods sold.
C)purchases.
D)gross profit.

Question 13

Another term for gross profit is:

A)gross income.
B)gross sales.
C)gross margin.
D)gross operating income.

Question 14

The financial statements of a merchandising company will show:

A)the same accounts as the financial statements of a service company.
B)gross profit after operating expenses on the income statement.
C)inventory as a current asset on the balance sheet.
D)cost of goods sold as a contra revenue account on the income statement.

Question 15

Cost of Goods Sold is an operating expense on the income statement.

Question 16

The seller does not include consigned merchandise on hand in its balance sheet,because the seller does not own this inventory.

Question 17

To document approval of purchase returns,the buyer issues a credit memorandum meaning that accounts payable are reduced for the amount of the return.

Question 18

Roadway Company purchases inventory from Fedway Company with the shipping terms FOB destination.This means that:

A)Roadway Company owns the goods while they are in transit.
B)Legal title passes to Roadway Company when the goods leave Fedway's shipping dock.
C)Fedway Company will pay the freight on this transaction.
D)Roadway Company will include the goods in their inventory as soon as they leave Fedway's shipping dock.

Question 19

A purchase discount decreases the cost of the inventory.

Question 20

Service entities report cost of goods sold on the income statement.

Question 21

Which statement is TRUE?

A)Most businesses use the periodic inventory system.
B)The excess of sales revenue over cost of goods sold is called gross profit because operating expenses have not yet been subtracted.
C)Most companies use the specific identification method.
D)Most companies in the United States follow International Financial Reporting Standards.

Question 22

How do purchase returns and allowances and purchase discounts affect gross purchases?

A)Both are added to purchases.
B)Both are subtracted from purchases.
C)Purchase returns and allowances are added to purchases;purchase discounts are subtracted from purchases.
D)Purchase returns and allowances are subtracted from purchases;purchase discounts are added to purchases.

Question 23

On June 1,Neighbor Company purchased inventory on account with a cost of $3,000.The credit terms were 3/10,net 30.On June 2,Neighbor returned 50 percent of the inventory.Neighbor uses the perpetual inventory system.On June 8,Neighbor paid for the inventory.What journal entry did Neighbor Company prepare on June 8?

A)debit Purchase Discount for $45,debit Cash for $1,455 and credit Accounts Payable for $1,500
B)debit Accounts Payable for $1,500 and credit Cash for $1,500
C)debit Accounts Payable for $1,500 credit Purchase Discount for $45 and credit Cash for $1,455
D)debit Accounts Payable for $1,500,credit Inventory for $45 and credit Cash for $1,455

Question 24

On June 1,Nicholson Company purchased inventory on account with a cost of $1,600.Credit terms were 2/10,net 30.On June 2,Nicholson Company returned 50 percent of the inventory.Nicholson Company uses the perpetual inventory system.What journal entry did Nicholson Company prepare on June 2?

A)debit Purchase Returns for $1,600 and credit Accounts Payable for $1,600
B)debit Cash for $1,600 and credit Accounts Payable for $1,600
C)debit Purchase Returns for $800 and credit Accounts Payable for $800
D)debit Accounts Payable for $800 and credit Inventory for $800

Question 25

On August 1,Savage Company purchased $2,100 of inventory on account with credit terms of 4/10,net 30.Savage Company uses the perpetual inventory system.On August 15,Savage Company paid the amount due.What journal entry did they prepare on August 15?

A)debit Inventory for $2,100 and credit Accounts Payable for $2,100
B)debit Accounts Payable for $2,100,credit Inventory for $84 and credit Cash for $2,016
C)debit Accounts Payable for $2,100 and credit Cash for $2,100
D)debit Accounts Payable for $2,016 and credit Cash for $2,016

Question 26

The selling price of a television is $1,700 and the cost to the retailer is $725.What is the retailer's gross profit from the sale of the television?

A)$0
B)$975
C)$725
D)$1,700

Question 27

Which of the following is NOT used to determine the cost of net purchases?

A)freight-out
B)freight-in
C)purchase returns
D)purchase discounts

Question 28

The inventory system that uses computer software to keep a running record of inventory on hand is the:

A)cost of goods sold inventory system.
B)periodic inventory system.
C)perpetual inventory system.
D)hybrid inventory system.

Question 29

Grogan Company purchases inventory on account with a cost of $1,700 and a retail price of $3,400.Grogan Company uses the perpetual inventory method.What journal entry is required on the date of purchase?

A)debit Purchases for $1,700 and credit Accounts Payable for $1,700
B)debit Purchases for $3,400 and credit Cash for $3,400
C)debit Inventory for $1,700 and credit Accounts Payable for $1,700
D)debit Accounts Receivable for $3,400 and credit Purchases for $3,400

Question 30

A company purchased inventory for $1,300 per unit.The company later sold one unit of the inventory for cash of $1,900.Under the perpetual inventory system,which accounts will be debited to record the sale?

A)Cash,$1,900;Inventory,$1,300
B)Cash,$1,900;Cost of Goods Sold,$1,300
C)Cash,$1,900;Cost of Goods Sold,$600
D)Cash,$1,900;Inventory,$600

Question 31

Company A has inventory out on consignment and held for sale by Company B.Which company will include the goods in their inventory?

A)Company A
B)Company B
C)either Company A or Company B
D)cannot be determined from the facts

Question 32

Boston Company sells thirty items for $800 per unit and has a cost of goods sold per unit of $480.The gross profit to be reported for selling 30 items is:

A)$320.
B)$9,600.
C)$14,400.
D)$24,000.

Question 33

On July 1,Corrao Company purchased $800 of inventory on account with credit terms of 3/10,net 30.Corrao Company uses the perpetual inventory system.On July 5,Corrao Company paid the amount due.What journal entry did they prepare on July 5?

A)debit Accounts Receivable for $800 and credit Cash for $800
B)debit Accounts Payable for $800,credit Inventory for $24 and credit Cash for $776
C)debit Purchase Discount for $24,debit Accounts Payable for $752 and credit Cash for $776
D)debit Accounts Payable for $776 and credit Cash for $776

Question 34

Under a perpetual inventory system,the journal entry to record the purchase of inventory on account will include a:

A)debit to Inventory and a credit to Cash.
B)debit to Inventory and a credit to Accounts Payable.
C)debit to Accounts Payable and a credit to Inventory.
D)debit to Purchases and a credit to Accounts Payable.

Question 35

When inventory is shipped from the seller to the buyer with shipping terms of FOB destination:

A)title passes from the seller to the buyer when the goods leave the seller's shipping dock.
B)the goods will be included in the inventory of the buyer while in transit.
C)the seller has title to the goods while they are in transit.
D)the buyer will pay the transportation costs associated with the purchase.

Question 36

To determine the cost of goods sold,to report on the income statement,multiply the number of units of inventory:

A)sold times the retail price per unit.
B)sold times the cost per unit.
C)purchased times the retail price per unit.
D)purchased times the cost per unit.

Question 37

Sanfran Company purchased inventory for $110,000.In addition they had purchase returns of $6,000 and paid freight-in of $13,000.Sanfran Company's net cost of purchases would be:

A)$91,000.
B)$103,000.
C)$117,000.
D)$129,000.

Question 38

During the current year,the following transactions occurred for Marjorie's Jewelry Store:
A.On May 1,the business purchased 10 rings on account at $6,000 each.Credit terms were 2/10,net/30.
B.On May 2,the business returned one ring because of a defect.
C.On May 3,three of the rings were sold on account at $8,000 each,to one customer.Credit terms were n/30.No sales returns were expected.
D.On May 9,the accounts payable was paid in full.
E.On May 10,the customer paid for one ring sold on May 3.
F.On May 31,the business paid rent of $4,000 for the month of May and wages of $5,000.
Required:
1.Journalize the above transactions for Marjorie's Jewelry Store.The store uses the perpetual inventory system.Explanations are not required.
2.Prepare the income statement for the month ending May 31 of the current year.Use the multistep format and ignore taxes.

Question 39

On May 1,Santelle Company purchased $700 of inventory on account with credit terms of 4/10,net 30.Santelle uses the perpetual inventory system.On May 2,the seller gave Santelle a $100 allowance due to a product defect.What journal entry did Santelle Company prepare on May 2?

A)debit Accounts Payable for $100 and credit Purchase Returns and Allowances for $100
B)debit Accounts Payable for $100 and credit Purchase Discounts for $100
C)debit Cash for $100 and credit Accounts Payable for $100
D)debit Accounts Payable for $100 and credit Inventory for $100

Question 40

Using a perpetual inventory system,which journal entry(ies)is(are)prepared when two units of merchandise are sold on account?

A)debit Accounts Receivable and credit Sales Revenue only
B)debit Cash and credit Sales Revenue;debit Cost of Goods Sold and credit Inventory
C)debit Accounts Receivable and credit Sales Revenue;debit Cost of Goods Sold and credit Inventory
D)debit Accounts Receivable and credit Sales Revenue;debit Inventory and credit Cost of Goods Sold

Question 41

When inventory costs are decreasing,the LIFO costing method will generally result in:

A)a higher gross profit than under FIFO.
B)a lower gross profit than under FIFO.
C)a lower inventory value than under FIFO.
D)the same inventory value as FIFO.

Question 42

If a company uses LIFO for tax purposes,they must use LIFO for financial reporting purposes.

Question 43

When inventory costs are rising,FIFO allows managers to manipulate net income by timing the purchases of inventory.

Question 44

To determine the cost of ending inventory using the LIFO method:

A)the latest purchase costs are used.
B)the specific unit cost of the inventory is used.
C)the average cost of the inventory is used.
D)the beginning inventory and earliest purchase costs are used.

Question 45

If inventory costs are rising and a company is using LIFO,large purchases of inventory near the end of the year will:

A)increase income taxes paid.
B)decrease income taxes paid.
C)not change the amount of income taxes paid.
D)cannot be determined.

Question 46

Steve's Hardware Store uses the perpetual inventory system.The business incurred the following transactions:
A.On November 1,10 snow blowers were purchased on account at $1,000 each.Credit terms were 2/10,net 30.
B.On November 2,the business returned two snow blowers due to damage incurred in shipping.
C.On November 10,the business sold three of the snow blowers on account at $1,500 each.The credit terms were 2/10,net 30.No sales returns are expected.
D.On November 12,the business paid for the snow blowers.
E.On November 30,the business paid wages of $2,000.
Required:
Journalize the above transactions for Steve's Hardware Store.Explanations are not required.

Question 47

An auto dealer uses a perpetual inventory system.The dealer incurred the following transactions during the month of May:
1.On May 1,the dealer purchased 10 vehicles on account at $20,000 each,with credit terms of 2/10,net 30.
2.On May 2,the dealer returned one vehicle due to a product defect.
3.On May 3,the dealer sold 5 vehicles for $25,000 each on account.The credit terms are n/30.No sales returns are expected.
4.On May 9,the dealer paid for the vehicles purchased less the return on May 2.
5.On May 31,the dealer collected one-half of the amount due from the May 3 sale.
6.On May 31,the dealer paid the rent for the next month of $2,500.
Required:
Prepare the journal entries for the dealer during the month of May.Explanations are not required.

Question 48

The average cost per unit is calculated as the cost of goods available for sale divided by the number of units sold.

Question 49

When inventory costs are rising,a company using the LIFO costing method will generally pay less taxes than if the company had been using the FIFO method.

Question 50

Under the average-cost inventory method,to determine the average cost per unit:

A)the cost of beginning inventory is divided by the number of units available.
B)the cost of beginning inventory plus the cost of purchases is divided by the number of units sold.
C)the cost of purchases for the period are divided by the number of units available.
D)the cost of beginning inventory plus the cost of purchases is divided by the number of units available.

Question 51

The choice of an inventory costing method does not impact a company's balance sheet.

Question 52

The LIFO method assigns the most recent inventory cost to cost of goods sold.

Question 53

When inventory costs are increasing,the FIFO costing method will generally yield a cost of goods sold that is:

A)higher than cost of goods sold under the LIFO method.
B)lower than cost of goods sold under the LIFO method.
C)equal to the gross profit under the LIFO method.
D)equal to cost of goods sold under the LIFO method.

Question 54

ABC Furniture Unlimited sells antique furniture.ABC will most likely use the ________ method to cost its ending inventory.

A)First-in,first-out
B)Last-in,first-out
C)Specific identification
D)Average

Question 55

When comparing the results of LIFO and FIFO when inventory costs are decreasing:

A)cost of goods sold will be lower using FIFO.
B)ending inventory will be higher using FIFO.
C)cost of goods sold will be higher using LIFO.
D)ending inventory will be higher using LIFO.

Question 56

The use of the FIFO method generally increases taxable income:

A)when inventory costs are constant.
B)when inventory costs are declining.
C)when inventory costs are increasing.
D)under all circumstances.

Question 57

Under the ________ method,ending inventory is based on the costs of the most recent purchases.

A)average-cost
B)FIFO
C)LIFO
D)specific-identification

Question 58

The inventory cost under the average cost per unit method will generally fall in between the inventory cost using the LIFO and FIFO methods.

Question 59

All of the following costs would be included in the cost of inventory EXCEPT for:

A)insurance while in transit from seller.
B)costs to get inventory ready for sale.
C)taxes paid on the purchase price.
D)sales commission paid to salesperson when the inventory is sold.

Question 60

The inventory method used by a company affects:

A)net income on the income statement.
B)the income taxes to be paid.
C)the ending inventory on the balance sheet.
D)all of the above.

Question 61

A LIFO liquidation occurs when ________ fall(s)below the ending inventory quantities in the previous period.

A)beginning inventory quantities
B)ending inventory quantities
C)beginning inventory costs
D)ending inventory retail value

Question 62

When inventory costs are falling,which inventory costing method minimizes the taxes paid?

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 63

Tomasino's inventory records show the following data at January 31: At January 31,240 units are still on hand.What is the cost of the ending inventory at January 31 if Tomasino uses the FIFO method?

A)$1,680
B)$1,950
C)$2,520
D)$2,130

Question 64

The following data was extracted from the records of Today Company: What is the gross profit using the LIFO method?

A)$6,000
B)$24,360
C)$21,000
D)$27,000

Question 65

A company has a beginning inventory of $50,000 and purchases during the year of $150,000.The beginning inventory consisted of 3,000 units and 8,000 units were purchased during the year.3,780 units remain in ending inventory.The cost of the ending inventory using the average-cost method will be: (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar. )

A)$131,260.
B)$199,980.
C)$68,720.
D)$268,700.

Question 66

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

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 67

Summertime had the following data for the month of March: On March 31,300 units are still on hand.Determine the cost of goods sold for March if Summertime uses the FIFO method.

A)$11,808
B)$7,800
C)$8,286
D)$9,088

Question 68

Which inventory costing method provides the most realistic measure of net income?

A)FIFO
B)LIFO
C)average cost
D)specific identification

Question 69

Gross profit will be the:

A)highest if LIFO is used and inventory costs are decreasing.
B)lowest if LIFO is used and inventory costs are increasing.
C)highest if FIFO is used and inventory costs are increasing.
D)all of the above.

Question 70

The following data was obtained from the records of Ivanovich Artists,Inc. ,for the current year.Sales during the year were 400 units.
Required:
1.Calculate the cost of the ending inventory using:
a.FIFO.
b.LIFO.
c.Average cost.Round average cost per unit to two decimal places.Round final answers to the nearest dollar.
2.Calculate the cost of goods sold by:
a.FIFO.
b.LIFO.
c.Average cost.Round average cost per unit to two decimal places.Round final answers to the nearest dollar.

Question 71

If inventory costs are decreasing over time,the income taxes paid using FIFO will ________ the income taxes paid using LIFO.

A)exceed
B)equal
C)be less than
D)none of the above

Question 72

Given the following data,calculate cost of goods sold using the FIFO costing method.

A)$720
B)$888
C)$1,004
D)$1,354

Question 73

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

A)$2,170
B)$2,200
C)$2,278
D)$2,480

Question 74

Given the following data,calculate the cost of goods sold using the LIFO costing method.

A)$1,981
B)$925
C)$1,091
D)$820

Question 75

Thelen's inventory records show the following data at January 31: At January 31,240 units are still on hand.What is the cost of the ending inventory at January 31 if Thelen uses the LIFO method?

A)$2,160
B)$2,610
C)$3,120
D)$2,760

Question 76

Given the following data,calculate the cost of ending inventory using the average cost method.(Round any intermediary and final answers to two decimal places. )

A)$620.10
B)$631.20
C)$300.00
D)$1,120.00

Question 77

When comparing the FIFO and LIFO inventory methods:

A)LIFO reports inventory at net realizable value.
B)LIFO reports the most up-to-date inventory cost on the balance sheet.
C)FIFO results in the most realistic net income figure.
D)FIFO matches old inventory costs against revenue.

Question 78

Which statement is FALSE?

A)Many U.S.companies that currently use LIFO for their U.S.operations must use another method if they have operations in foreign countries.
B)IFRS does not permit the use of LIFO.
C)IFRS does permit the FIFO method.
D)If LIFO is no longer allowed to be used in the United States,the tax burden on many companies will be lower.

Question 79

Given the following data,calculate the cost of goods sold using the average-cost method. Round average cost per unit calculations to two decimal places.Round final answer to the nearest dollar.

A)$1,394
B)$1,066
C)$1,640
D)$3,046

Question 80

A company has a beginning inventory of $20,000 and purchases during the year of $140,000.The beginning inventory consisted of 2,000 units and 7,000 units were purchased during the year.The company has 5,000 units left at year-end.Under average-cost,what is Cost of Goods Sold? (Round any intermediary calculations to two decimal places and your final answer to the nearest dollar. )

A)$124,460
B)$71,120
C)$140,000
D)$160,000