ACC 304 All Assignments ACC 304 All Assignments | Page 104

4. Application of the lower-of-cost-or-market rule results in
inconsistency because a company may value inventory at cost in one
year and at market in the next year.
5. GAAP requires reporting inventory at net realizable value, even if
above cost, whenever there is a controlled market with a quoted price
applicable to all quantities.
6. A reason for valuing inventory at net realizable value is that
sometimes it is too difficult to obtain the cost figures.
7. In a basket purchase, the cost of the individual assets acquired is
determined on the basis of their relative sales value.
8. A basket purchase occurs when a company agrees to buy
inventory weeks or months in advance.
9.
Most purchase commitments must be recorded as a liability.
10. If the contract price on a noncancelable purchase commitment
exceeds the market price, the buyer should record any expected losses