Which Application of the Lower of Cost or Market Rule

question 107

Multiple Choice

Which application of the lower of cost or market rule will generally result in the highest valuation for the ending inventory?

• A)to each item of the inventory
• B)to each major category of inventory
• C)to the total inventory
• D)all of these applications result in the same valuation for inventory

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Definitions:

Rate of Return

The gain or loss of an investment over a specified period, expressed as a percentage of the investment’s cost.

Internal Rate of Return

The metric used to estimate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows equal to zero.

Cash Outlay

The total amount of cash that is spent by a business or organization for certain purposes or activities, including investments or expenses.

Present Value Factors

Quantitative metrics used to calculate the current worth of a future sum of money or stream of cash flows given a specific discount rate.