If a company is using the lower-of-cost-or-market rule and a write-down is required, how will that write-down affect the company's financial statements?
A)Net income will increase.
B)Gross margin will decrease.
C)Total assets will decrease.
D)Net income and total assets will both decrease.

Question

Quizplus · Accepted Answer

A write-down under the lower-of-cost-or-market rule reduces the value of inventory on the balance sheet, leading to a decrease in total assets. It also results in an expense on the income statement, reducing net income.

If a Company Is Using the Lower-Of-Cost-Or-Market Rule and a Write-Down