Reference no: EM132972273
Problem 1: How is the gross profit method used in relation to inventory valuation?
a) To verify the accuracy of the perpetual inventory record.
b) To verify the accuracy of the physical inventory.
c) To estimate the cost of goods sold.
d) To provide a FIFO inventory value.
Problem 2: When a portion of inventory has been pledged as security for a loan:
a) The value of the inventory pledged should be deducted from the debt.
b) The fact should be disclosed but the amount of current assets should not be affected.
c) An equal amount of retained earnings should be appropriated.
d) The cost of the pledged inventory should be transferred from current asset to noncurrent asset.
Problem 3: The gross profit method is not valid when:
a) There is substantial increase in the quantity of inventory during the year.
b) There is substantial increase in the cost of inventory during the year.
c) The gross margin percentage changes significantly during the year.
d) All ending inventory is destroyed by fire before it can be counted.
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