When the Market Value of Inventory Drops Below the Cost

question 67

Multiple Choice

When the market value of inventory drops below the cost recorded in the financial records,applying the lower of cost or market/net realizable value (LCM/NRV) rule causes:

• A)a decrease in cost of goods sold.
• B)no change in net income,other things being equal.
• C)a decrease in total assets.
• D)an increase in net income.

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Definitions:

Medium of Exchange

A mediating tool or mechanism that assists in the buying, selling, or exchanging of items among individuals.

Exchange of Currencies

The act of trading one country's currency for another, facilitating international trade and investment through the foreign exchange market.

Division of Labor

The breakdown of production processes into distinct tasks, with different workers specializing in each task to increase efficiency and productivity.

Cash Flows

The net amount of cash and cash-equivalents being transferred into and out of a business.