Question Details

Why are inventories stated at lower-of-cost-or-net realizable value  



1.	LCNRV of inventory
a.	is always either the net realizable value or its cost. 
b.	should always be equal to net realizable value.
c.	may sometimes be less than net realizable value.
d.	should always be equal to net realizable value less costs to complete.

	2.	Lower-of-cost-or-net realizable value
a.	gives the lowest valuation if applied to the total inventory.
b.	gives the lowest valuation if applied to major groups of inventory.
c.	gives the lowest valuation if applied to individual items of inventory.
d.	must be applied to major groups for taxes.

	3.	 When the cost-of-goods-sold method is used to record inventory at net realizable value
a.	there is a direct reduction in the selling price of the product that results in a loss being recorded on the income statement prior to the sale.
b.	a loss is recorded directly in the inventory account by crediting inventory and debiting loss on inventory decline.
c.	only the portion of the loss attributable to inventory sold during the period is recorded in the financial statements.
d.	the net realizable value figure for ending inventory is substituted for cost and the loss is buried in cost of goods sold.

	4.	Lower-of-cost-or-net realizable value as it applies to inventory is best described as the
a.	reporting of a loss when there is a decrease in the future utility below the original cost.
b.	method of determining cost of goods sold.
c.	assumption to determine inventory flow.
d.	change in inventory value to net realizable value.

	5.	Why are inventories stated at lower-of-cost-or-net realizable value ?
a.	To report a loss when there is a decrease in the future utility.
b.	To be conservative.
c.	To report a loss when there is a decrease in the future utility below the original cost.
d.	To permit future profits to be recognized




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