When the Lower of Cost or Market (LCM) Rule Requires

question 97

Multiple Choice

When the lower of cost or market (LCM) rule requires an inventory adjustment:

• A) the adjustment usually, but not always, reduces the book value of inventory.
• B) the write-down is usually reported as a part of cost of goods sold.
• C) the inventory adjustment is recorded in a contra-revenue account called sales allowances.
• D) the write-down does not affect any of the financial statements.

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Definitions:

McDonald's

A global fast-food company recognized for its burgers, fries, and breakfast items, known as a pioneer in the quick service restaurant industry.

Donald Boudreaux

An American economist, author, and professor known for his work on free market economics.

Private Property

Ownership rights over property (such as land, buildings, or goods) by individuals or non-governmental entities.

Market System

A type of economic system where decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand.