A Painting Is Currently Worth $100,000,and Is Expected to Maintain

question 22

Multiple Choice

A painting is currently worth $100,000,and is expected to maintain its real value for three years.The real interest rate is expected to remain constant at 10%.What is the present value of the painting's expected price at the end of the third year?

• A)$75,131
• B)$88,899
• C)$96,153
• D)$100,000
• E) $70,000

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Definitions:

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, labor, and both variable and fixed overhead - in the cost of a product.

Net Operating Income

An entity’s income after all operating expenses have been deducted from total revenue, excluding taxes and interest charges.

Variable Costing

A costing method in which fixed manufacturing overhead is not assigned to the product, but rather treated as an expense of the period.

Absorption Costing

is an accounting method that includes all manufacturing costs—direct materials, direct labor, and both variable and fixed manufacturing overhead—in the cost of a product.