Multiple Choice
On a classified balance sheet, what is the net amount of property, plant, and equipment (PP&E) reported as?
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2. Transaction Analysis
Classified Balance Sheet Components
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On a classified balance sheet, the Merchandise Inventory account is reported in the:
A
Current Liabilities section
B
Noncurrent Assets section
C
Current Assets section
D
Owner's Equity section
Verified step by step guidance1
Understand the concept of a classified balance sheet: A classified balance sheet organizes assets, liabilities, and equity into specific categories to provide a clearer financial picture.
Review the definition of Merchandise Inventory: Merchandise Inventory represents goods a company holds for sale during its normal business operations. It is considered a short-term asset because it is expected to be sold within a year or the operating cycle.
Identify the appropriate section for Merchandise Inventory: Merchandise Inventory is reported under the Current Assets section because it is a resource that will be converted into cash or used up within one year or the operating cycle.
Distinguish Merchandise Inventory from other sections: Merchandise Inventory is not part of Current Liabilities (obligations due within a year), Noncurrent Assets (long-term resources), or Owner's Equity (the residual interest in assets after liabilities are deducted).
Conclude that Merchandise Inventory is classified under Current Assets on a classified balance sheet, as it aligns with the definition and purpose of this section.
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