The Gross Profit Method of Inventory Valuation Is NOT Suitable

question 51

Multiple Choice

The gross profit method of inventory valuation is NOT suitable when

• A) a portion of the inventory is destroyed.
• B) there is a substantial increase in inventory during the year.
• C) there is no beginning inventory because it is the first year of operation.
• D) the gross profit percentage applicable to the goods in ending inventory is different from the percentage applicable to the goods sold during the period.

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Definitions:

Memorandum Entry

An accounting entry that is made in the records but does not affect the financial statements.

Tangible

Physical and material assets that can be seen and touched, such as machinery, buildings, and equipment.

Balance Sheet

A financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of its financial condition.

Equipment Held

Assets in the form of machinery or other equipment that a company owns and uses in its operations.