During a Period of Rising Prices and Inventories, a Company

question 106

Multiple Choice

During a period of rising prices and inventories, a company whose debt/equity ratio is dangerously close to the minimum specified by agreement with a major creditor would prefer which cost flow assumption?

• A) FIFO
• B) LIFO
• C) Averaging
• D) The company would be indifferent as to which cost flow assumption is adopted.

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Definitions:

Demand

The volume of a commodity or service that buyers intend and can afford to buy across a range of prices over a set time frame.

Price Elasticity

A measure of how much the quantity demanded of a good responds to a change in its price, influencing consumer behavior and market dynamics.

Unity

The state of being united or joined as a whole, often used to denote a sense of togetherness or harmony.