Consider the following cost items:1. Sales commissions earned by a company's sales force.2. Raw materials purchased during the period.3. Current year's depreciation on a firm's manufacturing facilities.4. Year-end completed production of a carpet manufacturer.5. The cost of products sold to customers of an apparel store.6. Wages earned by machine operators in a manufacturing plant.7. Income taxes incurred by an airline.8. Marketing costs of an electronics manufacturer.9. Indirect labor costs incurred by a manufacturer of office equipment.Required:A. Evaluate the costs just cited and determine whether the associated dollar amounts would appear on the firm's balance sheet, income statement, or schedule of cost of goods manufactured.B. What major asset will normally be insignificant for

Question

service enterprises and relatively substantial for retailers, wholesalers, and manufacturers? Briefly discuss.C. Briefly explain the similarity and difference between the merchandise inventory of a retailer and the finished-goods inventory of a manufacturer.

What will be an ideal response?

Answer 1

A. 
1. Income statement
2. Schedule of cost of goods manufactured
3. Schedule of cost of goods manufactured
4. Balance sheet
5. Income statement
6. Schedule of cost of goods manufactured
7. Income statement
8. Income statement
9. Schedule of cost of goods manufactured

B. The asset that differs among these businesses is inventory. Service businesses typically carry no (or very little) inventory. Retailers and wholesalers normally stock considerable inventory. Manufacturers also carry significant inventories, typically subdivided in three categories: raw materials, work in process, and finished goods.

C. The similarity: Both inventories are carried for sale by the respective businesses. The difference: Retailers purchase merchandise inventory; in contrast, manufacturing firms produce their goods.