Question

The accountant for the Lintz Sales Company is preparing the income statement for 2017 and the balance sheet at December 31, 2020. The January 1, 2020 merchandise inventory balance will appear

A. only as an asset on the balance sheet
B. only in the COGS section of the balance sheet
C. as a deduction in the COGS section of the income statement and as a current asset on the balance sheet
D. as an addition in the COGS section of the income statement and as a current asset on the balance sheet

Answer 1

The merchandise inventory balance for Lintz Sales Company on January 1, 2020, is deducted in the COGS section of the income statement and included as a current asset on the balance sheet.

Step-by-step explanation:

The January 1, 2020 merchandise inventory balance will appear as a deduction in the COGS (Cost of Goods Sold) section of the income statement and as a current asset on the balance sheet. In accounting, the merchandise inventory at the beginning of the year is used to calculate the cost of goods available for sale during the year, which is then used to determine the cost of goods sold.

The merchandise inventory balance is part of the calculation for the COGS; beginning inventory plus purchases minus ending inventory equals COGS. The balance sheet, on the other hand, will show the merchandise inventory as a current asset reflecting the value of inventory still available at the end of the year.