The Original Cost of an Inventory Item Is Above the Replacement

question 97

Multiple Choice

The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the

• A) net realizable value.
• B) net realizable value less the normal profit margin.
• C) replacement cost.
• D) original cost.

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Definitions:

Financing Activities

Transactions related to raising capital and repaying investors, including issuing shares, taking out loans, and paying dividends.

10-Year Bond

A debt security issued by governments or corporations with a fixed interest rate and maturity of ten years.

Statement of Cash Flows

A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, breaking the analysis down to operating, investing, and financing activities.

Direct Method

In cash flow reporting, this accounting method lists major cash inflows and outflows directly, showing the exact sources and uses of cash during the reporting period.