Question

Which of the following statements does not accurately describe the lower of cost or net realizable value valuation method for inventory? Multiple Choice The journal entry to write down inventory increases cost of goods sold. The journal entry to write down inventory does not affect pretax income. The journal entry to write down inventory decreases gross profit. The journal entry to write down inventory decreases current assets.

Answer 1

The statement which does not accurately describe the lower of cost or net realizable value valuation method for inventory is:

• C. The journal entry to write down inventory does not affect pretax income

Inventory has to do with the accurate listings of the goods which a business has in stock for purposes of selling. This is important because it helps to prevent theft and also to properly calculate profit and loss.

As a result of this, we can see that the lower of cost method for making inventory is a type of inventory which states that a business must have records of goods which cost lower than their current market pricing and this is used when there is a reduction in market prices

Therefore, the correct answer is option C because the journal entry does not show the pretax earnings.

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