If a company is using the lower-of-cost-or-market rule and a write-down is required,how will that write-down affect the elements of the company's financial statements?
A)Net income will increase.
B)Gross margin will decrease.
C)Total assets will decrease.
D)Gross margin and total assets will both decrease.

Question

Quizplus · Accepted Answer

A write-down entry resulting from applying the lower-of-cost-or-market rule decreases total assets (inventory)and stockholders' equity (retained earnings).It increases expenses [cost of goods sold (if material)or operating expenses (if immaterial)],which decreases net income and gross margin.

If a Company Is Using the Lower-Of-Cost-Or-Market Rule and a Write-Down