When Following U

Multiple Choice

When following U.S. GAAP, which of the following statements is not correct regarding inventory write-downs using the lower-of-cost-or-market rule?

A) If the write-down is significant, the direct method is preferred because the loss is disclosed separately from the cost of goods sold.
B) Firms can use one of two methods to write down inventory to market: the direct method or the indirect method.
C) The direct method writes off a loss to the inventory account and records that loss in the cost of goods sold on the income statement.
D) The indirect method reports the loss as a separate line item on the income statement within income from continuing operations.