If the Replacement Cost of Inventory Is Less Than Its

question 135

Multiple Choice

If the replacement cost of inventory is less than its historical cost, the company will write down the inventory by:

• A)debiting Cost of Goods Sold and crediting Inventory.
• B)debiting Inventory and crediting Cost of Goods Sold.
• C)making a note in the financial statements only.
• D)debit Inventory for replacement cost, credit Inventory for historical cost.

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Definitions:

CAPM

Capital Asset Pricing Model, a framework used to determine the theoretical expected return of an asset or portfolio, taking into account its risk relative to the overall market.

Expected Return

The anticipated profit or loss from an investment, taking into account the probability of varying outcomes.

Pure Time Value

The portion of an option's price that reflects the potential for value change based on the time remaining until its expiration.

Market Risk Premium

The bonus yield an investor projects to receive by placing their money in a risky market portfolio instead of in assets that carry no risk.