Module 7 Quiz

Multiple Choice

1. Inventory becomes part of cost of goods sold when a company

a. sells the inventory.
b. purchases the inventory.
c. pays for the inventory.
d. receives the payment from the customer.

2. Accountants refer to the difference between sales and cost of goods sold as the
a. net sales.
b. holding gain.
c. goods available for sale.
d. gross profit.

3. The correct entry under the perpetual system for recording an inventory purchase includes
Debit Inventory
Credit Cash /AP
a. debit to Purchases.
b. debit to Merchandise Inventory.
c. debit to Accounts Payable.
d. credit to Purchases.

4. The cost of goods sold in a periodic inventory system is found by

a. deducting the cost of the ending inventory from the net cost of purchases.
b. deducting the cost of the ending inventory from the cost of goods available for sale.
c. deducting the cost of the beginning inventory from the cost of goods available for
sale.
d. adding the net cost of purchases to the ending inventory.

5. Under a perpetual inventory system, the purchase of goods for resale would result in
a. a debit to the Accounts Receivable account.
b. a debit to the Purchase account.
c. a debit to the Cost of Goods Sold account.
d. a debit to the Inventory account.

6. Which of the following is not acceptable for determination of inventory cost?

a. FIFO method
b. Average Cost method
c. Specific identification method
d. All of the above are acceptable.

7. In a periodic inventory system, if the ending inventory is understated by $7,000 as of December

31, 20X2,
a. cost of goods sold will be overstated.
b. cost of goods sold will be understated.
c. retained earnings will be understated.
d. a and c
e. none of the above
.
8. ABC, Inc., projects sales for the year 20X1 to be $60,000,000. For the past five years ABC’s
gross profit margin has averaged 65%. What amount should ABC, Inc., project for gross profit
for 20X2?
a. $39,000,000
b. $35,000,000
c. $21,000,000
d. $10,000,000

9. Merkey, Inc.’s cost of goods sold for 20X2 was $65,000. They had beginning and ending
inventory of $12,000 and $14,000, respectively. What was Merkey, Inc.’s inventory turnover for
20X2?= 65,000/(12,000+14,000)/2
a. 5.6
b. 5.4
c. 5.0
d. 4.6

10. Labor costs can be found in which type of inventory?

a. Finished goods inventory
b. Raw materials inventory
c. Work in process inventory
d. b and c
e. a and c

11. Which of the following is the correct flow of inventory costs?

a. Finished goods, raw materials, work in process
b. Work in process, finished goods, raw materials
c. Raw materials, work in process, finished goods
d. none of the above