The Gross Profit Method of Valuing Inventory

question 67

Multiple Choice

The gross profit method of valuing inventory:

• A)Is the most accurate of the commonly used methods.
• B)Is a satisfactory substitute for taking a physical inventory for annual financial statements.
• C)Assumes that the gross profit rate will remain the same for the current year as it has in the past year or so.
• D)Is not an acceptable method under GAAP.

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Definitions:

Interest Rate

The percentage at which interest is paid by a borrower for the use of money that they borrow from a lender.

Gross Amount

The total sum before any deductions are made, such as taxes, discounts, or expenses.

Price Escalation

An increase in the price of products or services over time, often due to factors such as inflation or increased costs of materials.

Firm-Fixed-Price

A type of contract where the price agreed upon is not subject to any adjustments based on the cost experience of the supplier or service provider.