Final answer:
The gross profit method of estimating ending inventory is not acceptable for annual financial statements because more precise methods are required for this formal reporting. Interim financial statements and insurance claims for destroyed inventory might allow for such estimation methods. option (4)
Step-by-step explanation:
The gross profit method of estimating ending inventory is a technique used in accounting to estimate the cost of goods sold and the ending inventory balance. This estimation method is typically applied in certain situations due to its less exact nature. It is not acceptable for annual financial statements because more accurate and reliable methods are required for these formal reports. Instead, the gross profit method is commonly used in situations like insurance claims for destroyed inventory or interim financial statements, where a quick estimate is needed, and the exactness of the figures is not as critical.
Comparing choices D with B, while interim financial statements may allow for less precise methods, the gross profit method is still acceptable for these. This means that choice B is not the answer we are looking for. Therefore, choice C, annual financial statements, is the correct answer because the use of the gross profit method is not considered acceptable for the precise and accurate reporting required on an annual basis.