Earn-Out Is When the Seller Agrees to Accept a Percentage

question 78

True/False

Earn-out is when the seller agrees to accept a percentage of the sales price and stays on to manage the business for a few more years under the new owner.

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Definitions:

Weighted-Average Method

A cost flow assumption used in inventory accounting that calculates the cost of goods sold based on an average cost of inventory items.

Cost of Goods Sold

The total cost directly linked to the production of the products sold by a company, including materials and labor.

Inventory Valuation

The method used to assign a monetary value to a company's inventory, including raw materials, work-in-progress, and finished goods.

Retail Method

A method used to determine the value of the ending inventory using a cost-to-retail ratio. Often used for interim financial reports.