What Costs Should Be Included in the Merchandise Inventory Account

question 66

Multiple Choice

What costs should be included in the Merchandise Inventory account of a merchandising firm?

• A) the purchase price of merchandise only
• B) all costs necessary to acquire inventory and prepare it for sale
• C) an allocated portion of period costs
• D) the purchase price of the merchandise + selling expenses

---

Definitions:

Coupon Rate

The percentage rate at which a bond's face value accrues interest each year.

Straight Debt

A fixed-income security, such as a bond, that has a predetermined interest rate, maturity, and principal repayment schedule.

Credit Default Swap

A specific type of credit derivative where the underlying reference asset is a credit obligation such as a bond or a bank loan of a specific company. One counterparty (the protection buyer) makes a periodic payment (the credit default swap premium) to the second counterparty (the protection seller). If the underlying reference asset suffers a credit event such as bankruptcy, the protection seller will make a payment to the protection buyer. Credit default swaps allow protection buyers to hedge themselves against credit risk, and protection sellers to invest based on their assessment of credit risk.

Premium Rate

This refers to the additional cost above the standard rate charged by financial instruments or insurance policies, to cover additional risks or benefits.