When Inventory Declines in Value Below Original (Historical) Cost, and This

question 125

Multiple Choice

When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?

• A) Sales price
• B) Net realizable value
• C) Historical cost
• D) Net realizable value reduced by a normal profit margin

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Definitions:

Return On Stockholders' Equity

A measure of a company's profitability that calculates how many dollars of profit are generated for each dollar of shareholders' equity.

Accounts Receivable Turnover

A financial ratio that measures how many times a company can turn its accounts receivable into cash within a specific period.

Sales

The exchange of goods or services for money, constituting the primary source of revenue for most businesses.

Accounts Receivable Turnover

A financial metric that measures the efficiency with which a company collects on its receivables or the credit it extends to customers by calculating the number of times receivables are turned over during a given period.