Which of the Following Statements Best Describes How Management Selects

question 76

Multiple Choice

Which of the following statements best describes how management selects an inventory valuation method?

• A)If a company generally sells its oldest inventory first,it must use the FIFO inventory valuation method.
• B)If a company generally sells its oldest inventory first,it must use the LIFO inventory valuation method.
• C)If a company generally sells its newest inventory first,it must use the FIFO inventory valuation method.
• D)If a company sometimes sells its newest inventory and sometimes sells its oldest inventory,then it must use the weighted average inventory valuation method.
• E)A company may choose any inventory valuation method even if it is contradictory to the physical flow of inventory.

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Definitions:

Cash Flow

The total amount of money being transferred into and out of a business, affecting the company's liquidity.

Indirect Method

A way of calculating cash flows from operating activities by starting with net income and adjusting it for changes in non-cash accounts.

Patent Amortization

The process of expensing the cost of a patent over its useful life, reflecting the consumption of the patent's value over time.

Depreciable Asset

A tangible asset that is subject to depreciation, reflecting its loss in value over time due to wear and tear, or obsolescence.