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You're Reading a Free Preview 48.The gross profit method of inventory valuation isinvalidwhena.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.applying a blanket gross profit rate to merchandise that have widely varying rates of grossprofit. 49.Which statement is true about the gross profit method of inventory valuation? Get answer to your question and much more 50.A major advantage of the retail inventory method is that it Get answer to your question and much more 51.An inventory method which is designed to approximate inventory valuation at the lower of costor market is Get answer to your question and much more 52.The retail inventory method is based on the assumption that thea.final inventory and the total of goods available for sale contain the same proportion ofhigh-cost and low-cost ratio goods.b.ratio of gross margin to sales is approximately the same each period.c.ratio of cost to retail changes at a constant rate.d.proportions of markups and markdowns to selling price are the same. 53.Which statement is true about the retail inventory method? Get answer to your question and much more 54.When the conventional retail inventory method is used, markdowns are commonly ignored inthe computation of the cost to retail ratio because Get answer to your question and much more The gross profit method of inventory valuation isinvalidwhenthere is no beginning inventory because it is the first year ofoperation.a portion of the inventory is destroyed.there is a substantial increase in inventory during the year.applying a blanket gross profit rate to merchandise that havewidely varying rates of gross profit.Solution: The gross profit percentage applicable to the goods inending inventory is different from the percentage applicable tothe goods sold during the period. The following data concerning the retail inventory method are takenfrom the financial records ofSheridanCompany.CostRetailBeginninginventory$ 194000$ 284000Purchases9020001180000Freight-in24800—Net markups—80700Net markdowns—56700Sales—1344000 The ending inventory at retail should be$144000. Get answer to your question and much more CraneInc. has the following information related to an item in itsending inventory. Product 66 has a cost of $150, a replacement cost of$142, a net realizable value of $148, and a normal profit margin of $7.What is the final lower-of-cost-or-market inventory value for product66? Get answer to your question and much more OrioleInc. uses the conventional retail method to determine its endinginventory at cost. Assume the beginning inventory at cost (retail) were$396500($597000), purchases during the current year at cost (retail)were $3468000($5253600), freight-in on these purchases totaled$162500, sales during the current year totaled $4726000, and netmarkups were $417000. What is the ending inventory value at cost?Hint: Round intermediate calculation to 3 decimal places, e.g. 0.635and final answer to 0 decimal places. Get answer to your question and much more IvanhoeSales Company uses the retail inventory method to value itsmerchandise inventory. The following information is available for thecurrent year:CostRetailBeginninginventory$ 32000$ 47000Purchases210000280000Freight-in2700—Net markups—8700Net markdowns—11000 Employee discounts—1000Sales revenue—225000If the ending inventory is to be valued at the lower-of-cost-or-market,what is the cost-to-retail ratio?$242000 ÷ $338000$244700 ÷ $324700$244700 ÷ $327000$244700÷ $335700 Get answer to your question and much more The following information is available for October for Carla Vista Company.Beginning inventory$350000Net purchases1100000Net sales2200000 Percentage markup on cost66.67%A fire destroyed Carla Vista’s October 31 inventory, leaving undamaged inventory with a cost of$21500. Using the gross profit method, the estimated ending inventory destroyed by fire is$108500.SolutionCLOSE. Get answer to your question and much more Upload your study docs or become a Course Hero member to access this document Upload your study docs or become a Course Hero member to access this document Which is not valid about the gross profit method?The GP method will be invalid in the case where GP margin on sales differs from the margin on closing inventory. This states that on a notable difference in the GP margin, this method will be invalid since the primary assumption to use it is that the GP margin will not change.
Which inventory valuation method is not allowed?The last in, first out (LIFO) method of inventory valuation is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States, which uses generally accepted accounting principles (GAAP).
Why is the gross profit method not appropriate for annual reports?As outlined earlier, the gross profit method is not appropriate for annual reports because it only estimates what the ending inventory balance may be and is not conclusive.
When can you use gross profit method to estimate the ending?How to calculate ending inventory using the gross profit method. Cost of good available = Cost of beginning inventory + Cost of all purchases.. Cost of good sold = Sales ∗ Gross profit percentage.. Ending inventory using gross profit = Cost of goods available − Cost of goods.. |
When should the gross profit method of inventory valuation not be used because it is invalid?
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