Which statement below correctly describes merchandise inventory for a merchandising company?

• A. It represents only the finished goods produced by the company.
• B. It is not reported as an asset on the balance sheet.
• C. It includes raw materials, work in process, and finished goods.
• D. It consists of goods purchased for resale that are ready for sale to customers.

Answer: (D)

Verified step by step guidance

1. Understand the concept of merchandise inventory: Merchandise inventory refers to the goods a merchandising company purchases with the intention of reselling them to customers. These goods are ready for sale and do not require further processing.
2. Clarify the incorrect options: The first option ('It represents only the finished goods produced by the company') is incorrect because merchandising companies do not produce goods; they purchase them for resale. The third option ('It includes raw materials, work in process, and finished goods') is incorrect because these categories apply to manufacturing companies, not merchandising companies.
3. Explain why merchandise inventory is reported as an asset: Merchandise inventory is considered a current asset on the balance sheet because it represents goods that are expected to be sold within the normal operating cycle of the business.
4. Identify the correct description: The correct statement is 'It consists of goods purchased for resale that are ready for sale to customers,' as this accurately describes the nature of merchandise inventory for a merchandising company.
5. Summarize the key takeaway: Merchandise inventory for a merchandising company consists of goods purchased for resale, is ready for sale to customers, and is reported as a current asset on the balance sheet.