CPB / BookKeeping Inventory and Cost of Goods Sold

Question 1

Under the periodic inventory system, Cost of Goods Sold is calculated using which formula?

Accepted Answer

Beginning Inventory + Purchases - Ending Inventory

Answer

Ending Inventory + Purchases - Beginning Inventory

Answer

Net Sales - Gross Profit

Answer

Total Assets - Total Liabilities

Question 2

Under the FIFO inventory costing method, which units are assumed to be sold first?

Accepted Answer

The oldest units purchased

Answer

The newest units purchased

Answer

The average-cost units

Answer

The highest-cost units

Question 3

A company uses LIFO during a period of rising prices. Compared to FIFO, LIFO will result in:

Accepted Answer

Higher COGS and lower net income

Answer

Lower COGS and higher net income

Answer

Higher ending inventory and higher net income

Answer

No difference in COGS or net income

Question 4

Under the perpetual inventory system, the Inventory account is updated:

Accepted Answer

After every purchase and sale transaction

Answer

Only at the end of the accounting period

Answer

Only when a physical count is performed

Answer

Only when goods are returned to a supplier

Question 5

The Lower of Cost or Net Realizable Value (LCNRV) rule is applied to inventory to ensure that:

Accepted Answer

Inventory is not overstated on the balance sheet

Answer

Inventory turnover is maximized

Answer

COGS is minimized for tax purposes

Answer

Ending inventory matches the physical count

Question 6

If ending inventory is overstated in Year 1, the effect on Year 1 net income will be:

Accepted Answer

Overstated

Answer

Understated

Answer

Unaffected

Answer

Eliminated by the audit