The lower of cost or market rule for inventory valuation can be used in conjunction with the retail inventory method if which of the following adjustments is made?

A) Include the cost and retail value of the beginning inventory when using the FIFO method.
B) Include the cost and retail value of the beginning inventory and the net markups and markdowns when using the average cost method.
C) Exclude the separate ratios for each layer in the beginning inventory when using the LIFO method.
D) Exclude the cost and retail value of the beginning inventory and net markups when applying the lower of average cost or market method.

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Dallas Brown · Accepted Answer

Final Answer : B, Explanation :  The retail inventory method calculates ending inventory value by using a ratio of cost to retail price. To use it in conjunction with the lower of cost or market rule, adjustments for net markups and markdowns must be made, as they affect the retail value of inventory. This ensures the inventory is valued accurately at the lower of cost or market. Including the cost and retail value of the beginning inventory along with net markups and markdowns when using the average cost method allows for these necessary adjustments.

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