Case Study 1

CHAPTER 5 Merchandising Operations and the Multiple-Step Income Statement ANSWERS TO QUESTIONS ?1.(a)Disagree. The steps in the ac look ating cycle atomic number 18 the comparable for both a merchandising ac lodge and a gain company. (b)The measurement of income is conceptually the same. In both types of companies, final income (or loss) results from the unified of expenses with revenue enhancement enhancements. ?2.The components of revenues and expenses differ as follows: | | Merchandising| | Service| RevenuesExpenses| | gross revenue exist of Goods interchange and Operating| | Fees, Rents, etc.Operating (only)| ?3.Under a periodic gillyflower frame the company does not keep track of how many an(prenominal) units be on hand. Instead it takes a physical count at the end of the period to determine ending instrument and embody of goods sold. Under a eonian system the company adjusts its roll account each time it purchases or sells stock. a nd so it eternally has a record of its available inventory. Having knowledge of inventory balances helps a company avoid lost gross sales cod to stock-outs as well as carrying too much inventory on hand (which results in additional storage and intervention costs). The get department can make better decisions with the forethought of perpetual inventory records. ?4.

(a)The income measurement process is as follows: SalesRevenue| little| Cost ofGoodsSold| Equals| GrossProfit| Less| OperatingExpenses| Equals| NetIncome| (b)Income measurement in a merchandising company differs from a service company as follo ws: (a) sales are the primary source of rev! enue and (b) expenses are split up into twain main categories: cost of goods sold and operating expenses. ?5.Sales revenue$100,000 Cost of goods sold??70,000 Gross profit$?30,000 ?6.Agree. In congruity with the revenue recognition principle, sales revenues are generally considered to be earned when the goods are transferred from the seller to the buyer; that is, when the exchange transaction...If you collateral request to get a full essay, order it on our website: BestEssayCheap.com

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