Assuming Rising Prices, Which Statement Is Correct

question 44

Multiple Choice

Assuming rising prices, which statement is correct?

• A) FIFO reports a lower value for cost of sales than other methods.
• B) FIFO reports a lower profit than other methods.
• C) FIFO reports a lower value for closing inventory than other methods.
• D) With the FIFO assumption, assuming prices are rising, it is not possible to calculate whether cost of sales/inventory is lower or higher than it would be if other assumptions about inventory valuation were made.

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Definitions:

Retains

The portion of earnings that a company decides to keep or retain rather than distribute to shareholders in the form of dividends.

Dividend

A portion of a company's earnings distributed to its shareholders, typically in the form of cash or stock.

Shares Outstanding

The total number of a company's shares of stock that are owned by shareholders, including both public investors and restricted company insiders.

Cost of Equity

The return that investors expect for investing in a company's equity, considering the risk involved in holding the company's shares.