Assume a company paid $800 for a computer that it plans to sell to its customers....

Assume a company paid $800 for a computer that it plans to sell to its customers. Suppose that because of new technology the company could buy the same computer today for $600. How would the lower-of-cost of market rule affect the financial statements?

Multiple Choice

Decrease net income on the income statement

Decrease common stock reported on the balance sheet

Increase liabilities on the balance sheet

Increase stockholders’ equity on the balance sheet

Expert Solution

Correct answer--- Decrease net income on the income statement

Writing down of inventory to market price when market price is lower than cost a debit for expense is made to record loss in inventory value. Simultaneously Inventory value decreases. The recognition of loss of inventory will reduce the income since expense will be increased.

ekkarill92 answered 2 years ago

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