Discuss AICPA CPA-Financial Exam Topic 3 Question 17

An inventory loss from a permanent market decline of $360,000 occurred in May 1989. Cox Co. appropriately recorded this loss in May 1989 after its March 31, 1989 quarterly report was issued. What amount of inventory loss should be reported in Cox's quarterly income statement for the three months ended June 30, 1989?

A$0

B$90,000

C$180,000

D$360,000

Suggested Answer: D

Choice 'd' is correct. $360,000 inventory loss reported for the quarter ended 6-30-89.

Rule: Inventory losses from 'permanent market declines' are recognized in the interim period, incurred and later, if they 'turn-around,' are recognized as gains in a subsequent interim period only to the extent of previously reported losses.

Rule: 'Temporary' market declines need not be recognized at interim when a 'turn-around' can reasonably be expected to occur before the end of the fiscal year.

Facts: This $360,000 inventory decline is permanent and the entire loss would be recognized in the quarter interim period incurred (6-30-89).

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8 comments · newest first

Donte 11 months ago

I don't know, feels like they should report something for transparency.

Kallie 12 months ago

Correct, no impact on the quarterly income statement.

Penney 12 months ago

Wait, are we sure about that? Seems odd to just ignore a $360k loss.

Darrin 12 months ago

Totally agree, it should be $0 for that quarter.

Devora 1 year ago

The loss was recorded in May, so it won't affect the June statement.

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AICPA CPA-Financial Exam - Topic 3 Question 17 Discussion