Question

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

Answer 1

Answer:

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.