A company deliberately and inappropriately included interest costs in its December 31 inventory. Which one of the following statements is true for the company's December 31 financial statements?

Question

Quizplus · Accepted Answer

Including interest costs in inventory inflates the inventory value, which decreases the cost of goods sold (since less inventory is recognized as sold). This leads to a lower inventory turnover ratio, as the ratio is calculated by dividing the cost of goods sold by the average inventory. Higher inventory value without a corresponding increase in cost of goods sold results in a lower turnover ratio.

A Company Deliberately and Inappropriately Included Interest Costs in Its