Final answer:
The LCNRV rule may cause Carla Vista Depot's inventory value on the balance sheet to decrease if the net realizable value is less than the inventory cost. If the net realizable value is equal to or greater, the inventory value remains unchanged.
Step-by-step explanation:
When a company applies the Lower of Cost or Net Realizable Value (LCNRV) rule to its inventory, it is assessing the comparison between the cost of inventory and the net amount the company expects to realize from the sale of the inventory. If the net realizable value is less than the inventory cost, the inventory will be devalued on the balance sheet to reflect this lower market value, following the conservatism principle of accounting.
In the case of Carla Vista Depot, if the LCNRV rule results in a lower value than the inventory's recorded cost, then the value of the inventory reported on the balance sheet will be decreased. If LCNRV is equal to or greater than cost, the inventory value remains unchanged. Thus, without additional information about the actual costs and net realizable values, the exact effect on the balance sheet cannot be determined.