Which of the following assets must be reported at the lower-of-cost-or-market value? A. Merchandise Inventory B. Accounts Receivable C. Notes Receivable D. Prepaid Insurance

Question

Bridget Gardner

Business

29 May, 12:06

Which of the following assets must be reported at the lower-of-cost-or-market value? A. Merchandise Inventory B. Accounts Receivable C. Notes Receivable D. Prepaid Insurance

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Answers (1)

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Lorenzo · Answer 1

The correct answer is letter "A": Merchandise Inventory.

Explanation:

Lower-of-cost-or-market value is a strategy by which the costs of inventory on the company's Balance Sheet is reported at historical value - purchase cost - or market value, whatever it is lower. The lower-of-cost-or-market approach considers the value of inventory can change, meaning it can increase but it can decrease as well. For both purposes, the lower-of-cost-or-market value can be used. This technique follows the Generally Accepted Accounting Principles (GAAP).

Therefore, merchandise inventory, which can fluctuate in price during a period, is reported using the lower-of-cost-or-market value method.