Which Inventory Method Gives the Most Realistic Net Income

question 105

Multiple Choice

Which inventory method gives the most realistic net income?

• A)Average- cost, because it averages old and recent costs
• B)FIFO, because it uses cost in the order in which they were incurred
• C)LIFO, because it includes the most recent costs in cost of goods sold
• D)The answer depends on whether prices are rising or falling.

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Definitions:

Spreading Investment Capital

The strategy of diversifying investments across different assets, industries, or geographic regions to reduce risk.

Exchange-Traded Funds

Trading vehicles that follow different stock indexes, such as the S&P 500.

Cost of Capital

The cost of capital refers to the return a company must earn on its investment projects to maintain its market value and satisfy its creditors and investors.

Rate of Return

A measure of the gain or loss on an investment relative to the amount of money invested.