Questions: Check All That Apply Merchandising companies produce the goods they sell to customers. When the manufacturing process is complete, the cost of the related inventory items is transferred into finished goods. Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement. Costs necessary to get inventory in condition and location for sale are not included as a cost of inventory.

The correct statements are:

• Inventory is classified as an asset in the balance sheet until it is sold, at which time the cost is transferred to cost of goods sold in the income statement.

This statement is incorrect. Merchandising companies do not produce goods; they purchase finished goods from manufacturers and sell them to customers. Manufacturing companies are the ones that produce goods.

This statement is true for manufacturing companies, not merchandising companies. In manufacturing companies, once the production process is complete, the cost of the inventory is transferred to finished goods. However, the question pertains to merchandising companies, which do not have a manufacturing process.

This statement is correct. Inventory is considered an asset on the balance sheet. When it is sold, the cost of the inventory is transferred to the cost of goods sold on the income statement, reflecting the expense associated with the sale.

This statement is incorrect. Costs necessary to get inventory in condition and location for sale, such as shipping and handling costs, are included in the cost of inventory. These costs are capitalized as part of the inventory value on the balance sheet.