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

question 52

Multiple Choice

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

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

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Definitions:

Historical Cost Principle

A financial reporting rule mandating that assets are documented and presented at their initial acquisition price.

Balance Sheet Reporting

The process of disclosing a company's financial health at a given moment by listing its assets, liabilities, and equity.

Financial Reporting

The process of disclosing financial results and related information by a company to its stakeholders.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the ownership interest of shareholders in the company.