Ace Company Is a Retailer Operating in an Industry That

question 230

Multiple Choice

Ace Company is a retailer operating in an industry that experiences inflation (rising prices) . Ace wants the most realistic ending inventory. Which inventory costing method should Ace consider using?

• A) Average because all inventory costs will then represent an average amount.
• B) Specific identification is the most realistic method because it involves the actual costs.
• C) LIFO because ending inventory represents the earliest costs.
• D) FIFO because ending inventory represents the latest costs.

---

Definitions:

Discount Rate

The interest rate used to discount future cash flows to their present values.

Present Value

The current financial assessment of a sum of money in the future or ongoing cash flows, based on a specific rate of return.

Cash Flows

The movement of money into and out of a business, project, or financial product.

Growing Annuity

A series of cash flows that grow at a constant rate for a finite number of periods.