If the market value of goods in inventory falls to $26,000 below its cost, the company should:
A) do nothing, because assets are reported at their original purchase price.
B) credit inventory for $26,000.
C) debit inventory for $26,000 and credit accrued liabilities for $26,000.
D) use the weighted average cost method since that method provides a more accurate indicator of current value. The LCM rule requires a write-down of inventory when its replacement cost falls below its cost.

Question

Quizplus · Accepted Answer

The Lower of Cost or Market (LCM) rule requires that inventory be written down to its market value when it falls below its cost. Therefore, inventory should be credited for the amount of the write-down.

If the Market Value of Goods in Inventory Falls to $26,000