Which of the following statements does not accurately describe the lower of cost or net realizable value valuation method for inventory?
A)The journal entry to write down inventory decreases gross profit.
B)The journal entry to write down inventory decreases current assets.
C)The journal entry to write down inventory does not affect pretax income.
D)The journal entry to write down inventory increases cost of goods sold.

Question

Quizplus · Accepted Answer

The lower of cost or net realizable value valuation method is used when the current market value of inventory has decreased below its original cost. When this happens, the inventory must be written down to its net realizable value, which is the estimated selling price minus any additional costs to complete and dispose of the inventory. The journal entry to write down inventory will decrease both gross profit and current assets, as well as increase cost of goods sold. However, it does not affect pretax income because the write down is considered a non-operating expense.

Which of the Following Statements Does Not Accurately Describe the Lower