Answer: E. Damaged inventory that cannot be sold.
Explanation:
Merchandise inventory includes the invoice price less any discount. It also includes the cost of transporting the goods in and this is usually recorded as Carriage Inwards. Storage is another amount that is included in here as well.
Insurance for the merchandise is a cost of acquisition so this is included in merchandise cost as well. If the inventory is damaged however and cannot be sold, it does not go to the Merchandise inventory account but rather to a loss account.
