Which One of the Following Statements Regarding the Application of the Lower

question 55

Multiple Choice

Which one of the following statements regarding the application of the lower of cost or market method is true?

• A) The lower of cost or market method is most commonly applied on a total inventory basis because it is a more conservative approach.
• B) The lower of cost or market method is an exception to the historical cost principle.
• C) When the lower of cost or market method is used, inventories are valued at selling price.
• D) Generally, market value is greater than replacement cost.

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Definitions:

Journal Entries

Records of financial transactions in a company’s accounting system, providing a chronological record.

Periodic Inventory System

An inventory system that updates inventory balance after a certain period, typically incorporating physical counts to determine cost of goods sold.

Cost of Goods Sold

Directly incurred costs for materials and labor necessary for the production of goods a business sells.

Cash Flow Considerations

Refers to an evaluation of how a company generates and uses cash in its business activities, including investments, operations, and financing.