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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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A company uses the LIFO cost flow assumption. The replacement cost of an inventory item is below the net realizable value and above the net realizable value minus the normal profit margin. The original cost of the inventory item is above the replacement cost and below the net realizable value. As a result, under the lower of cost or market rule, the inventory item should be valued at the:

  1. a. net realizable value
  2. b. original cost
  3. c. replacement cost
  4. d. net realizable value minus the normal profit margin

To determine

Find out the correct option of inventory valuation under the LCM rule.

Explanation

Lower-of-cost-or-market: The lower-of-cost-or-market (LCM) is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, either at current market value or at historical cost price of the inventory, whichever is less.

The replacement cost refers to the amount that could be realized from the sale of the inventory...

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