1. GAAP requires that inventory be shown on the balance sheet at its cost (the price paid) regardless of its current value. This statement is

a) true.

b) false.

2. Assume a company paid $800 for a computer that it plans to sell to its customers. Suppose that as a result of new technology the company could buy the same computer today for $600. Which of the following journal entries would be required to show the inventory at the lower of cost or market?

a)

Account Titles	Debit	Credit
Inventory	600
Cost of Goods Sold		600

b)

Account Titles	Debit	Credit
Cost of Goods Sold	600
Inventory		600

c)

Account Titles	Debit	Credit
Inventory	200
Cost of Goods Sold		200

d)

Account Titles	Debit	Credit
Cost of Goods Sold	200
Inventory		200

3.The journal entry to recognize the write down of inventory based on the lower of cost or market rule will

a) decrease the amount of liabilities.

b) decrease the cash flow from operating activities.

c) increase the amount of expenses.

d) increase the amount of assets.

4. An analysis of the inventory owned by Owens Company as of the Companys fiscal closing date is shown in the following table.

Item	Quantity	Cost per Unit	Market Value per Unit
A	200	$20	$17
B	190	$50	$52
C	400	$34	$30
D	320	$25	$29

Assuming Owens applies the lower of cost or market rule on an individual basis, the Company would be required to recognize an expense amounting to:

a) $1,660.

b) $2,200.

c) $3,860.

d) $540.

5. An analysis of the inventory owned by Owens Company as of the Companys fiscal closing date is shown in the following table.

Item	Quantity	Cost per Unit	Market Value per Unit
A	200	$20	$17
B	190	$50	$52
C	400	$34	$30
D	320	$25	$29

Assuming Owens applies the lower of cost or market rule on an individual basis the amount of inventory shown on the balance sheet would be

a) $32,900.

b) $35,100.

c) $34,560.

d) $33,540.