When the replacement cost of inventory drops below the cost recorded in the financial records,applying the lower of cost or net realizable value (LC&NRV)rule means:
A)a decrease in cost of goods sold.
B)no change in net income,other things being equal.
C)inventory be written down to its net realizable value.
D)none of the answers are acceptable.

Question

Quizplus · Accepted Answer

The LC&NRV rule requires that when the replacement cost of inventory drops below the cost recorded in the financial records, inventory must be written down to its net realizable value. This means that the value of the inventory on the balance sheet will be reduced, resulting in a decrease in net income. Therefore, option C is the best choice.

When the Replacement Cost of Inventory Drops Below the Cost