Why Are Inventories Included in the Computation of Net Income

question 30

Multiple Choice

Why are inventories included in the computation of net income?

• A) To determine cost of goods sold.
• B) To determine sales revenue.
• C) To determine merchandise returns.
• D) Inventories are not included in the computation of net income.

---

Definitions:

Stockholders' Equity

The ownership interest of shareholders in the assets of a corporation, calculated as total assets minus liabilities.

Paid-In Capital

Paid-in capital is the amount of money that shareholders have directly invested in a company by purchasing shares during the initial offering or through secondary market transactions.

Par Value

The nominal or face value of a bond, share, or other financial instrument, as stated on the certificate or instrument.

Stockholders' Equity

The ownership interest of shareholders in a company, represented by the amount of capital contributed plus retained earnings minus liabilities.