When the market value of inventory drops below the cost recorded in the financial records, applying the lower of cost or market/net realizable value (LCM/NRV) rule causes:

Multiple Choice

• a decrease in cost of goods sold.

• an increase in net income.

• a decrease in total assets.

• no change in net income, other things being equal.

Inventory levels increase by 10% at your company during the fourth quarter. Based on this increase, which of the following statements must be correct?

Multiple Choice

• This must be good news because inventories are an asset to the company.

• This must be bad news because higher inventories mean higher costs.

• This could be bad news if the company is ordering more goods because unit costs are falling.

• This could be good news if the company is ordering more goods because sales appear to be rising.