Solution-Find application of the lower-of-cost-or-market

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Question 1: If the market value of inventory is less than its cost, then application of the lower-of-cost-or-market rule would:

Option 1: increase earnings and decrease the current ratio.

Option 2: decrease earnings and increase the current ratio.

Option 3: decrease earnings and decrease the current ratio.

Option 4: cause no change to earnings or the current ratio.

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