Which of the Following Statements Is Correct

question 29

Multiple Choice

Which of the following statements is correct?

• A)The choice of an inventory costing method is dependent upon the actual physical flow of the inventory.
• B)LIFO should be used during a period of increasing prices when the objective is to maximize the ending inventory value on the balance sheet.
• C)FIFO should be used during a period of decreasing prices when the objective is to maximize the gross profit reported on the balance sheet.
• D)The average cost method will result in an ending inventory balance which is somewhere between LIFO and FIFO when inventory prices are changing.

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Definitions:

Deductions

Amounts that are subtracted from gross income or revenue, leading to a lower taxable income or tax liability.

Take-home Pay

The net amount of income that an employee receives after deductions like taxes, social security, and retirement contributions are subtracted from their gross salary.

Times Interest Earned

A financial ratio that measures a company's ability to meet its interest obligations, calculated by dividing earnings before interest and taxes by interest expenses.

Interest Expense

The cost incurred by an entity for borrowed funds, typically expressed as an annual interest rate on debts such as loans and bonds.