Which statement is true about inventory?

• A. Investments in growing crops should be included in an inventory statement.
• B. A net capital ratio greater than one indicates the business is solvent.
• C. Net farm income from operations includes gains or losses from disposal of farm capital items.
• D. Short term goals may require more than one year to achieve.

Answer: (A)

Growing crops are assets that the farm will convert to cash or use in production, so they belong in inventory on the balance sheet. They are part of current assets because they are held for sale or for use within the normal operating cycle. Recording them as inventory ensures costs and future revenues are matched as the crops are harvested and sold. The other statements mix in different financial concepts: the net capital ratio isn’t a standard, reliable measure of solvency in this context; gains or losses from disposing of capital items are not included in net farm income from operations; and short-term goals are generally defined as those achievable within one year, not longer. Therefore, including growing crops in the inventory statement is the true approach.