Question

SMG Co. has reviewed its inventory items and has determined that the market value of inventory items has declined below their cost. Under which rule listed below would SMG decrease the value of its inventory to the lower fair market value?

1) Gross Profit
2) LIFO
3) FIFO
4) Lower of Cost or Market

Answer 1

SMG Co. would use the Lower of Cost or Market rule to decrease the value of its inventory items to their lower fair market value.

Step-by-step explanation:

SMG Co. would decrease the value of its inventory to the lower fair market value under the rule of Lower of Cost or Market. This rule requires a company to compare the cost of inventory with its market value and record the lower value as the inventory value. If the market value is lower than the cost, the inventory value is decreased to reflect the decline in value.