Assume a company paid $1,000 for a television that it plans to sell to its customers. Suppose that because of new technology the company could buy the same television today for $800. How would the lower-of-cost-or-market rule affect the financial statements?

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires companies to record inventory at the lower of its cost or market value. In this case, the cost of the television is $1,000 but the market value is $800. Therefore, the company would record the television on its financial statements at $800, resulting in a decrease in net income.

Assume a Company Paid $1,000 for a Television That It