1. The income statement of a merchandising company includes a major type of cost that does not appear in the income statement of a service-type business. Identify this cost and explain what it represents.
3. During the current year, Green Bay company earned a gross profit of $350,000, whereas new England company earned a gross profit of only $280,00. Both companies had net sales of $900,000. Does this mean that green Bay is more profitable than new England? Explain.
4. Explain the need for subsidiary ledgers in accounting for merchandising activities.
5. Define the term inventory shrinkage. How is the amount of inventory shrinkage determined in a business using a perpetual inventory system, and how is this shrinkage recorded in the accounting records?
6. Briefly contrast the accounting procedures in a perpetual and periodic inventory systems.
8. Explain the distinguishing characteristics of (a) a general journal and (b) a special journal.
12. Tireco is a retail store in a state that imposes a 6 percent sales tax. would you expect to find sales tax expense and sales tax payable in Tireco’s financial statements? Explain.
13. A seller generally records sales at the full invoice price, but the buyer often records purchases at net cost. Explain the logic of the buyer and seller recording the transaction at different amounts.
14. Define the term gross margin. Explain several ways in which management might improve a company’s overall profit margin