Which Statement Is Not Correct About the Retail Inventory Method

question 142

Multiple Choice

Which statement is not correct about the retail inventory method?

• A)It is an alternative to using a cost flow assumption.
• B)It is acceptable for annual financial reporting in Canada.
• C)It should only be used if reliable information is available about profit margins.
• D)It is a method that estimates ending inventory by applying an average sales margin.

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Definitions:

Product Warranty Expense

Costs associated with repairing or replacing products under warranty, recognized as an expense by companies.

Replacement Warranty

A guarantee that if a product fails or breaks down within a specified period, it will be replaced at no cost to the customer.

Quick Assets

Liquid assets immediately available to meet current liabilities, including cash, marketable securities, and accounts receivable.

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value due to changes in interest rates.