Which of the Following Statements About the Lower of Cost

question 92

Multiple Choice

Which of the following statements about the lower of cost or market rule is not correct?

• A) The lower of cost or market rule sometimes causes the book value of inventory to be written down below cost, but will never cause the book value of inventory to be increased above cost.
• B) The amount of inventory write-down is an expense which most companies report as cost of goods sold.
• C) Lower of cost or market is an inventory cost method used to determine cost of goods sold and ending inventory.
• D) The lower of cost or market (LCM) rule results in reporting inventory conservatively, at an amount that does not exceed its actual value.

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Definitions:

Use of Cash

The ways in which a business uses its cash on hand, including operating expenses, investing activities, and financing activities.

Cash Cycle

The period between the initial investment in inventory and receiving cash from the sale of goods or services, reflecting a company's efficiency and management of working capital.

Fixed Assets

Long-term tangible assets used in the operation of a business, such as buildings, machinery, and equipment, not easily converted into cash.

Source of Cash

Any activity or operation within a business that generates cash inflow.