Under the retail inventory method:
A)A company measures inventory on its balance sheet by converting retail prices to cost.
B)A company measures inventory on its balance sheet at current selling prices.
C)A company measures inventory on its balance sheet on a LIFO basis.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The retail inventory method involves converting the retail prices of inventory into a cost figure for financial reporting purposes. This allows companies to report their inventory at the lower of cost or market value, which is required by accounting standards. Therefore, choice A is the correct answer. Choice B is incorrect because the retail inventory method does not involve valuing inventory at current selling prices. Choice C is also incorrect, as the retail inventory method does not involve using a specific cost flow assumption, such as LIFO.

Under the Retail Inventory Method