Which of the following costs are reported as assets on the classified balance sheet of a manufacturer?

• A. Sales commissions
• B. Interest expense
• C. Raw materials inventory
• D. Advertising expenses

Answer: (C)

Verified step by step guidance

1. Understand the concept of assets: Assets are resources owned by a company that are expected to provide future economic benefits. On a classified balance sheet, assets are categorized into current and non-current assets.
2. Identify the nature of raw materials inventory: Raw materials inventory represents the cost of materials that are yet to be used in production. Since these materials will be used to create goods that can generate revenue, they are considered an asset.
3. Differentiate between expenses and assets: Sales commissions, interest expense, and advertising expenses are costs incurred during operations and are reported as expenses on the income statement, not as assets on the balance sheet.
4. Classify raw materials inventory: Raw materials inventory is reported as a current asset under the 'Inventory' section of the classified balance sheet because it is expected to be used or converted into finished goods within the operating cycle.
5. Conclude why raw materials inventory is the correct answer: Unlike the other costs listed, raw materials inventory provides future economic benefits and meets the definition of an asset, making it appropriate for inclusion on the classified balance sheet.