Which of the following statements is not correct? A) The gross profit percentage

Question

Which of the following statements is not correct?

A) The gross profit percentage is calculated by dividing the gross profit for the year by the net sales for the year.

B) A current ratio of 3.5 to 1 means that a firm has $3.50 in current liabilities for every $1 of current assets.

C) The average inventory is calculated by adding the beginning inventory to the ending inventory and dividing the sum by 2.

D) Working capital is the difference between total current assets and total current liabilities.

Explanation / Answer

B) A current ratio of 3.5 to 1 means that a firm has $3.50 in current liabilities for every $1 of current assets. On the contrary it means that firm has $3.50 in current assets for every $1 of Current liability.

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