When Following U

question 59

Multiple Choice

When following U.S. GAAP, which of the following statements is not correct regarding inventory write-downs using the lower-of-cost-or-market rule?

• A) If the write-down is significant, the direct method is preferred because the loss is disclosed separately from the cost of goods sold.
• B) Firms can use one of two methods to write down inventory to market: the direct method or the indirect method.
• C) The direct method writes off a loss to the inventory account and records that loss in the cost of goods sold on the income statement.
• D) The indirect method reports the loss as a separate line item on the income statement within income from continuing operations.

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Definitions:

Income

The financial gain received by an individual or entity, typically through work, investments, or business operations.

Consumer Price Index

A measure of the average change in prices over time that consumers pay for a basket of goods and services.

Salary Equivalent

The equivalent annual salary amount for non-standard work arrangements when comparing to a full-time salary rate.

Price Index

A measure showing how prices change over time for a fixed basket of products, used to monitor inflation or deflation.