In week #4, we are shifting gears and begin analyzing the characteristics of a merchandising operation and introduce inventory.

• How do components of revenues and expenses differ between a merchandising company and a service company?

• In your own words define materiality.Provide an example to support your conclusion.

• Nida Hat Shop received a shipment of hats for which it paid the wholesaler $2,940.The price of the hats was $3,000, but Nida was given a $60 cash discount and required to pay freight charges of $75.What amount should Nida include in COGS?Why?

• Marshall Company discovers in 2014 that its ending inventory at December 31, 2013 was $5,000 overstated.What effect will this error have on (a) 2013 net income, (b) 2014 net income, and (c) the combined net income for the 2 years?(This question is worth 3 points and you will have one attempt to answer this question correctly.)