Asked by Zachary Smith on May 23, 2024
Verified
Which one of the following statements is true with regard to the lower of cost or market rule?
A) If the direct method is used in applying the lower of cost or market rule, the loss or loss recovery due to market valuation changes is included in cost of goods sold.
B) The lower of cost or market rule must be applied on an individual item basis for financial accounting purposes.
C) With the application of the lower of cost or market rule using the direct method, the account, Allowance to Reduce Inventory to Market, is reported on the balance sheet as a contra asset.
D) The lower of cost or market rule is primarily an application of the going concern assumption.
Going Concern Assumption
An accounting principle assuming that an entity will continue to operate for the foreseeable future.
Direct Method
An approach to preparing the cash flow statement where actual cash flows from operating activities are listed.
Lower of Cost
An accounting rule where inventory is recorded at the lower of either its acquisition cost or market value at reporting time.
- Gain knowledge about the lower of cost or market (LCM) principle and its utilization in relevant fields.
- Understand the theory and rationale behind the LCM rule, including conservatism.
Verified Answer
Learning Objectives
- Gain knowledge about the lower of cost or market (LCM) principle and its utilization in relevant fields.
- Understand the theory and rationale behind the LCM rule, including conservatism.
Related questions
In General, It Is Argued That the Lower of Cost ...
Generally, Valuing Inventory Above Cost ...
The Vogelson Company Accumulates the Following Cost and Market Value ...
Compute the Lower-Of-Cost-Or-Market Valuation for Gantner Company's Total Inventory Based ...
Laurie Company Applied FIFO to Its Inventory and Got the ...