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Chapter 5: Q5-22RQ (page 294)

What financial statement is merchandise inventory reported on, and in what section?

Short Answer

Expert verified

The merchandise inventory is reported in the current asset section of thebalance sheet.

Step by step solution

01

Meaning of Balance Sheet

A balance sheet refers to the report that represents the position of a business concern’sassets and liabilitieson a particular date. As it reflects the entity's financial position, it is also known as a positional statement.

02

Reporting of merchandise inventory on the financial statements

Themerchandise inventory is reported on the balance sheet of a company. It is reported under thecurrent assetsection of the positional statement because the benefit of merchandise inventory is consumed by the business within oneaccounting period.

Whereas, the merchandise sold by the company is reported on the income statement’scost of goods soldsection.

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Most popular questions from this chapter

Describe FOB shipping point and FOB destination. When does the buyer take ownership of the goods, and who typically pays the freight?

Click Computers has the following transactions related to the sale of merchandise inventory.

Mar. 1 Sold a computer (cost of \(3,000) for \)8,000 to a customer. The customer paid cash. The sales price included a one-year service contract valued at $168.

Dec. 31 Recorded the amount of service contract earned.

Journalize the transactions for Click Computers assuming that the company uses the perpetual inventory system.

Capital City Motorcycle’s selected accounts as of December 31, 2018, follow:

Selling Expenses $ 10,500

Interest Revenue 1,000

Net Sales Revenue 113,500

Cost of Goods Sold 85,000

Administrative Expenses 8,000

Determine the gross profit percentage for the year ended December 31, 2018.

Is an adjusting entry needed for inventory shrinkage when using the periodic inventory system? Explain.

Consider the following transactions for Burlington Drug Store:

Feb. 2 Burlington buys \(23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.

4 Burlington pays a \)50 freight charge.

9 Burlington returns $5,200 of the merchandise due to damage during shipment.

14 Burlington paid the amount due, less return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Burlington Drug Store?
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