Explanation Lower of cost or market: The lower-of-cost-or-market (LCM) rule states that the ending merchandise inventory must be reported in the financial statement of a company, at the price of market value of the ending inventory or the cost price of the ending inventory, whichever is less . Usually, inventory turnover ratio are analysed to evaluate whether a write-down is required to report inventory at LCM. A decreasing trend in inventory ratio indicates that the demand for inventory is very less as well the future price cuts may be needed to sell the inventory...

Loose-leaf for Fundamentals of Financial Accounting with Connect

5th Edition

ISBN: 9781259619007

Author: Fred Phillips Associate Professor

Publisher: McGraw-Hill Education

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Chapter 7, Problem 10MC

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To identify: Situation in which LCM write-down most likely required.

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Chapter 7, Problem 9MC

Chapter 7, Problem 7.1ME

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Chapter 7 Solutions

Loose-leaf for Fundamentals of Financial Accounting with Connect

Ch. 7 - What are three goals of inventory management?Ch. 7 - Describe the specific types of inventory reported...Ch. 7 - The chapter discussed four inventory costing...Ch. 7 - Which inventory cost flow method is most similar...Ch. 7 - Where possible, the inventory costing method...Ch. 7 - Contrast the effects of LIFO versus FIFO on ending...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Several managers in your company are experiencing...Ch. 7 - Explain briefly the application of the LCM rule to...Ch. 7 - Prob. 10Q

Ch. 7 - You work for a made-to-order clothing company,...Ch. 7 - Prob. 12Q Ch. 7 - (Supplement 7B) Explain why an error in ending...Ch. 7 - Prob. 1MC Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a name for a...Ch. 7 - Which of the following correctly expresses the...Ch. 7 - A New York bridal dress designer that makes...Ch. 7 - If costs are rising, which of the following will...Ch. 7 - Which inventory method provides a better matching...Ch. 7 - Prob. 8MC Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - Prob. 10MC Ch. 7 - Matching Inventory Items to Type of Business Match...Ch. 7 - Prob. 7.2ME Ch. 7 - Reporting Inventory-Related Accounts in the...Ch. 7 - Matching Financial Statement Effects to Inventory...Ch. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Prob. 7.6ME Ch. 7 - Prob. 7.7ME Ch. 7 - Prob. 7.8ME Ch. 7 - Prob. 7.9ME Ch. 7 - Prob. 7.10ME Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Interpreting LCM Financial Statement Note...Ch. 7 - Calculating the Inventory Turnover Ratio and Days...Ch. 7 - Prob. 7.14ME Ch. 7 - Prob. 7.15ME Ch. 7 - Prob. 7.16ME Ch. 7 - Prob. 7.17ME Ch. 7 - Reporting Goods in Transit and Consignment...Ch. 7 - Determining the Correct Inventory Balance Seemore...Ch. 7 - Determining the Correct Inventory Balance Seemore...Ch. 7 - Calculating Cost of Ending Inventory and Cost of...Ch. 7 - Calculating Cost of Ending Inventory and Cost of...Ch. 7 - Prob. 7.6E Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Evaluating the Effects of Inventory Methods on...Ch. 7 - Choosing LIFO versus FIFO When Costs Are Rising...Ch. 7 - Prob. 7.10E Ch. 7 - Prob. 7.11E Ch. 7 - Prob. 7.12E Ch. 7 - Prob. 7.13E Ch. 7 - Analyzing and Interpreting the Effects of the...Ch. 7 - Prob. 7.15E Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Prob. 7.17E Ch. 7 - Analyzing the Effects of Four Alternative...Ch. 7 - Evaluating the Income Statement and Income Tax...Ch. 7 - Prob. 7.3CP Ch. 7 - Prob. 7.4CP Ch. 7 - (Supplement 7B) Analyzing and Interpreting the...Ch. 7 - Analyzing the Effects of Four Alternative...Ch. 7 - Prob. 7.2PA Ch. 7 - Prob. 7.3PA Ch. 7 - Prob. 7.4PA Ch. 7 - Prob. 7.5PA Ch. 7 - Prob. 7.1PB Ch. 7 - Evaluating the income Statement and Income Tax...Ch. 7 - Prob. 7.3PB Ch. 7 - Prob. 7.4PB Ch. 7 - (Supplement 7B) Analyzing and Interpreting the...Ch. 7 - Prob. 7.1COP Ch. 7 - Prob. 7.2COP Ch. 7 - Prob. 7.3COP Ch. 7 - Prob. 7.1SDC Ch. 7 - Prob. 7.2SDC Ch. 7 - Critical Thinking: Income Manipulation under the...Ch. 7 - Accounting for Changing Inventory Costs In...

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Situation in which LCM write-down most likely required.

Solution Summary: The author explains that decreasing inventory turnover ratio and decreasing gross profit percentage is the most likely situation in which LCM write-down is required.

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To identify: Situation in which LCM write-down most likely required.

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Chapter 7 Solutions