discuss the accounting-for-inventory transactions of merchandising companies, the two formats of preparing the income statement, and how to evaluate the profitability of a merchandising company. We will also discuss how companies determine the year-end inventory value and cost of goods sold using one of the cost-flow assumptions. Finally, examine the impact of choosing a certain cost-flow assumption on the tax liability and other financial statement numbers of a company.

Let's begin with this question: How is the income statement of a merchandising company different from that of a service company?