When Following U

question 59

Multiple Choice

When following U.S. GAAP, which of the following statements is not correct regarding inventory write-downs using the lower-of-cost-or-market rule?

• A) If the write-down is significant, the direct method is preferred because the loss is disclosed separately from the cost of goods sold.
• B) Firms can use one of two methods to write down inventory to market: the direct method or the indirect method.
• C) The direct method writes off a loss to the inventory account and records that loss in the cost of goods sold on the income statement.
• D) The indirect method reports the loss as a separate line item on the income statement within income from continuing operations.