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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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What is the basic assumption underlying the gross profit method? How may the gross profit percentage for the prior year be modified to provide a better estimate of the inventory value?

To determine

Identify the basic assumption underlying the gross profit method and explain the manner in which the gross profit percentage for the previous year be modified to provide a better estimate of the inventory value.

Explanation

The rate of the gross profit in the current period would be same to the rate in the previous period is the underlying assumption of the gross profit method. There will be a change in the gross profit rate, if there is an increase or decrease in the cost or selling price of the inventory. Thus, the prior gross profit percentage should be modified to reflect the change to make the better estimation in the inventory...

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