When Comparing the Lower of Cost to Market Rule Under

question 103

Multiple Choice

When comparing the lower of cost to market rule under any of the methods

• A) the appropriate market value is determined before comparing it to the cost.
• B) the purpose of the ceiling is to ensure that the write-down is sufficient to cover all expected gains.
• C) the purpose of the floor is to prevent an excessive gain from being recognized in the future.
• D) the process is consistent with the principle of conservatism because the goal is to limit excessive swings in gross margin.

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Definitions:

Direct Financing Lease

A type of lease where the lessor effectively transfers all the risks and rewards incidental to ownership to the lessee without transferring legal ownership.

Sales-Type Lease

A lease agreement where the lessor recognizes immediate profit similar to a sale, often used in the context of finance leases in accounting.

Unearned Interest: Leases

Interest that has been collected on a lease but not yet earned, often because the period it covers has not fully elapsed.