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

The periodic COGS formula adds purchases to beginning inventory and subtracts the physical ending inventory count.

Question 2

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

Accepted Answer

The oldest units purchased

Answer

FIFO (First-In, First-Out) assumes the earliest purchased inventory items are sold before more recently purchased items.

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

LIFO assigns the most recent (higher-cost) units to COGS, which increases COGS and reduces reported net income during inflation.

Question 4

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

Accepted Answer

After every purchase and sale transaction

Answer

The perpetual system maintains a running, real-time balance of inventory by recording every purchase and sale as it occurs.

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

LCNRV prevents overstating inventory by writing it down to its estimated selling price less completion and disposal costs when market value falls.

CPB / BookKeeping Practice Test