CPB / BookKeeping Inventory and Cost of Goods Sold 2 — Questions and Answers
Question 1: Which inventory cost flow assumption produces the same result under both periodic and perpetual systems when prices are stable?
- Weighted-average cost
- FIFO (Correct answer)
- LIFO
- Specific identification
Correct answer: FIFO
FIFO produces the same COGS and ending inventory values under both periodic and perpetual systems because the same oldest units are always sold first regardless of timing.
Question 2: Freight-in costs on purchased inventory should be recorded as:
- Part of the cost of inventory (Correct answer)
- A selling expense
- An administrative expense
- A contra-revenue account
Correct answer: Part of the cost of inventory
Freight-in is a cost necessary to bring inventory to its usable location and is therefore capitalized as part of inventory cost.
Question 3: A purchase return reduces which account under a perpetual inventory system?
- Inventory (Correct answer)
- Purchases Returns and Allowances
- Accounts Receivable
- Cost of Goods Sold
Correct answer: Inventory
Under the perpetual system, inventory is debited on purchase and credited when goods are returned, directly reducing the inventory account.
Question 4: Which ratio measures how many times a company sells and replaces its inventory during a period?
- Inventory turnover ratio (Correct answer)
- Current ratio
- Gross profit margin
- Days sales outstanding
Correct answer: Inventory turnover ratio
Inventory turnover (COGS ÷ Average Inventory) shows how efficiently a company manages and sells its stock.
Question 5: Goods shipped FOB shipping point are included in whose inventory while in transit?
- The buyer's inventory (Correct answer)
- The seller's inventory
- Neither party's inventory
- The freight carrier's inventory
Correct answer: The buyer's inventory
FOB shipping point means title and risk transfer to the buyer at the point of shipment, so the buyer owns the goods in transit.
Question 6: Which inventory method is NOT permitted under U.S. GAAP for financial reporting purposes?
- Base stock method (Correct answer)
- FIFO
- LIFO
- Weighted-average cost
Correct answer: Base stock method
The base stock method is not an accepted inventory costing method under U.S. GAAP; acceptable methods include FIFO, LIFO, and weighted-average.
CPB / BookKeeping Inventory and Cost of Goods Sold 2
Which inventory cost flow assumption produces the same result under both periodic and perpetual systems when prices are stable?