Chapter 7 LearnSmarts

Mountain People's Co-op offers herbal tea for sale on consignment from Green Heron Company. Which company should report the inventory of unsold tea on its balance sheet?

Green Heron Company

Angus Company agreed to sell goods for Longhorn Company on consignment, but wasn't willing to take ownership of the goods in case they do not sell. Which of the following statements is true?

Longhorn owns the inventory and should report it on its balance sheet.

Inventory is reported on the ______. Later, when the inventory is sold, it becomes ______.

balance sheet as a current asset; Cost of Goods Sold on the income statement

merchandise inventory

consists of products acquired in a finished condition, ready for sale without further processing

Blog Inc., has net sales of $50,000, cost of goods sold of $30,000, and selling expenses of $5,000. Its gross profit is ______.

$20,000

True or false: Accounting rules allow companies to choose, from a variety of methods, the inventory method that best fits their business environment.

True

Merchandise inventory ______.

consists of products acquired in a finished condition that are available for sale is reported as a current asset on the balance sheet

Who decides which of the many inventory accounting methods a company should use?

the company's management