Which Statement Is True About the Gross Profit Method of Inventory

question 88

Multiple Choice

Which statement is true about the gross profit method of inventory valuation?

• A)It can be used as a substitute for the annual physical count of inventory.
• B)It assumes past percentages are appropriate for the current period.
• C)It uses mark-ups but not markdowns.
• D)It is designed to approximate inventory valuation at the lower of cost and market.

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Definitions:

Owner's Equity

The residual interest in the assets of a business after deducting liabilities, representing the capital owned by the owners or shareholders.

Assets

Resources owned by a business that have economic value and can be converted into cash.

Liabilities

Financial obligations or debts owed by a company to third parties, which must be settled over time through the transfer of assets, provision of services, or other means.

Supplies Expense

Costs associated with consumable items used in the operation of a business, such as office supplies, which are expensed as used.