Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements is correct?
A) NRV is greater than replacement cost.
B) Cost is less than net realizable value.
C) Cost is greater than net realizable value.
D) Cost is less than NRV minus a normal profit margin.

Question

Quizplus · Accepted Answer

Under the lower of cost or market method, inventory is reported at the lower amount between its cost and market value. If inventory is reported at net realizable value (NRV), it implies that the cost was higher than the NRV, hence the inventory is written down to NRV.