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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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For companies that use either LIFO or the retail inventory method, define the upper and lower constraints used in the lower of cost or market rule. What is the purpose of each constraint?

To determine

Explain upper and lower constraints used in the LCM rule and define the purpose of each constraint.

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.

Upper and lower constraints and its purposes:

Upper constraint is termed as ceiling and lower constraint is termed as floor.

Upper constraint (ceiling) on market value is considered an NRV, which refers to an estimated selling price that a company expects to collect in the form of cash from the customers by the sale of inventory...

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