Multiple Choice: Accounting for Inventory Transactions Select the best answer for each of the following:

1. Companies using a periodic inventory system:

a. Normally have small inventory balances.

b. Do not require immediate information on inventory balances on hand.

c. Keep track of inventory costs by using the most recent purchase prices.

d. Keep track of cost of goods sold by recording the cost of inventory sold as each sale occurs.

2. A perpetual inventory system:

a. Records the cost of goods sold at the end of the period in which the inventory is sold.

b. Records purchases at the end of the period.

c. Requires knowing ending inventory totals before cost of goods sold can be calculated.

d. Facilitates the calculation of inventory losses from theft, spoilage, and other types of shrinkage.

In computing cost of goods sold with a periodic inventory system:

a. Ending inventory and purchases are added to beginning inventory.

b. Beginning inventory is added to goods available for sale.

c. Purchases are deducted from beginning inventory plus ending inventory.

d. Ending inventory is deducted from total goods available for sale.

4. With a periodic inventory system, cost of goods sold will be overstated if:

a. Ending inventory is understated.

b. Obsolete inventory is improperly included in ending inventory.

c. Nonexistent inventory is included in ending inventory.

d. Beginning inventory is understated.

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