The adjusting entry to recognize the write down of inventory based on the lower-of-cost-or-market rule will
A)decrease the cash flow from operating activities.
B)decrease the amount of liabilities.
C)increase the amount of assets.
D)increase the amount of expenses.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires a company to write down the value of its inventory if the market value is lower than the cost. This adjustment recognizes the loss of value and increases the amount of expenses, ultimately decreasing net income. Therefore, the correct answer is D, it increases the amount of expenses. The adjusting entry has no effect on cash flows or the amounts of liabilities and assets.

The Adjusting Entry to Recognize the Write Down of Inventory