The lower-of-cost-or-market basis results in reporting
A)unrealized holding losses on inventory items currently through lower net income amounts.
B)delays reporting unrealized holding gains until the firm sells the goods.
C)unrealized holding gains on inventory items currently through higher net income amounts.
D)a and b
E)none of the above

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market basis requires companies to value their inventory at the lower of its cost or market value. If market value falls below cost, it results in unrealized holding losses, which are recognized immediately in the income statement, resulting in lower net income. This is option A. Delayed unrealized holding gains until the firm sells the goods, resulting in higher net income, is not a feature of this basis (option B is incorrect). Therefore, option C is incorrect. As both option A and B are correct, the best answer is D.

The Lower-Of-Cost-Or-Market Basis Results in Reporting