If Year-End Inventory Is Reduced from Cost to a Lower

question 3

Multiple Choice

If year-end inventory is reduced from cost to a lower net realizable value, which of the following accurately depicts the results?

• A) The capital account balance is increased and beginning inventory of the next period is reduced by the same amount.
• B) Cost of goods sold is increased and beginning inventory of the next period is decreased by the same amount.
• C) Cost of goods sold is reduced and beginning inventory of the next period is reduced by the same amount.
• D) Year-end inventory is reduced and cost of goods sold is reduced by the same amount.

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Definitions:

Acquisition Date

The specific date on which control of the assets of an acquired company is transferred to the buyer.

Deferred Tax Item

A financial item on the balance sheet that arises due to timing differences between the recognition of income and expenses for accounting and tax purposes.

Goodwill

An intangible asset that arises when a business is purchased for more than the fair value of its separate net assets.