A Company Just Starting Business Made the Following Four Inventory

question 199

Multiple Choice

A company just starting business made the following four inventory purchases in June: A physical count of merchandise inventory on June 30 reveals that there are 100 units on hand. The inventory method which results in the highest gross profit for June is

• A) the FIFO method.
• B) the specific identification method.
• C) the average-cost method.
• D) not determinable.

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Definitions:

Warrant

A financial instrument that confers the right to buy a security, typically a stock, at a specific price before a certain date.

Convertible Bond

A type of bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Straight-Bond Value

The value of a bond ignoring any embedded options, based purely on its coupon payments and principal repayment.

Conversion Value

The value of a convertible bond if it was immediately converted into common stock.