If Merchandise Inventory Is Being Valued at Cost and the Price

question 84

Multiple Choice

If merchandise inventory is being valued at cost and the price level is steadily falling, which method of costing will yield the largest gross profit?

• A) Average cost
• B) LIFO
• C) FIFO
• D) All methods will generate the same gross profit.

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Definitions:

Deflation

A decrease in the general price level of goods and services, often causing an increase in the value of money.

Nominal Interest Rate

The stated or face interest rate of a loan or financial product, not adjusted for inflation.

Purchasing Power

The ability of an individual or group to buy goods and services with a given amount of money.

Bank Account

A financial account maintained by a financial institution for a customer, allowing the customer to deposit and withdraw money, and in many cases, earn interest.