In the case of a taxpayer who uses the lower-of-cost-or-market inventory method:
A)Taxpayers may not use the lower of cost or market method for tax purposes.
B)Market price means the expected selling price.
C)Taxpayers may deduct a reserve for anticipated inventory price changes.
D)Each inventory item must be valued at the lower of its cost or its market value.
E)None of these.

Question

Quizplus · Accepted Answer

When using the lower-of-cost-or-market inventory method, each inventory item must be valued at the lower of its cost or its market value. This means that if the market value for a particular item is lower than its cost, the item's value should be adjusted to reflect the lower market value. Taxpayers are allowed to use this method for tax purposes, and may deduct a reserve for anticipated inventory price changes if certain conditions are met. The market price in this context refers to the actual selling price, not the expected selling price.

In the Case of a Taxpayer Who Uses the Lower-Of-Cost-Or-Market