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.

Question

Quizplus · Accepted Answer

The gross profit method assumes that the gross profit rate will remain the same for the current year as it has in the past year or so. It is not the most accurate method of inventory valuation and is not an acceptable method under GAAP. However, it can be a satisfactory substitute for taking a physical inventory for interim financial statements or as a quick estimate of inventory value.

The Gross Profit Method of Valuing Inventory