How does the conventional retail method approximate the$$lower$-$of$-$cost$-$or$-$market valuation? What is the impact on ending$$inventory$?$

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Part $1$

How does the conventional retail method approximate the$$lower$-$of$-$cost$-$or$-$market valuation?

A$.$

Under the$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$method$,$ net markups are included but net markdowns are not included in the calculation of the$$cost$-$to$-$retail ratio.

B$.$

Under the$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$method$,$ net markups and net markdowns are not included in the calculation of the$$cost$-$to$-$retail ratio.

C$.$

Under the$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$method$,$ both net markups and net markdowns are included in the calculation of the$$cost$-$to$-$retail ratio.

D$.$

Under the$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail$$method$,$ net markups are not included but net markdowns are included in the calculation of the$$cost$-$to$-$retail ratio.

Part $2$

What is the impact on ending$$inventory$?$

A$.$

The$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces higher retail numbers in the$$numerator$,$ raising the$$cost$-$to$-$retail ratio. As a$$result$,$ ending inventory is valued more$$conservatively$,$ approximating LCM. The treatment of net markdowns as an immediate$$write$-$down in$$value$,$ or as a$$loss$,$ is also conservative in nature.

B$.$

The$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces lower retail numbers in the$$denominator$,$ raising the$$cost$-$to$-$retail ratio. As a$$result$,$ ending inventory is valued less$$conservatively$,$ approximating LCM. The treatment of net markdowns as an immediate$$write$-$down in$$value$,$ or as a$$loss$,$ is conservative in nature.

C$.$

The$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces higher retail numbers in the$$denominator$,$ lowering the$$cost$-$to$-$retail ratio. As a$$result$,$ ending inventory is valued more$$conservatively$,$ approximating LCM. The treatment of net markdowns as an immediate$$write$-$down in$$value$,$ or as a$$loss$,$ is also conservative in nature.

D$.$

The$$lower$-$of$-$cost$-$or$-$market $($LCM$)$ conventional retail method produces lower retail numbers in the$$numerator$,$ lowering the$$cost$-$to$-$retail ratio. As a$$result$,$ ending inventory is valued less$$conservatively$,$ approximating LCM. The treatment of net markdowns as an immediate$$write$-$down in$$value$,$ or as a$$loss$,$ is less conservative in nature.