Learning Objective 3: Describe and illustrate the financial statements of a merchandising business. a) What is the difference between a "multi-step income statement" and a "single-step income statement"? Learning Objective 4: Describe the adjusting and closing process for a merchandising business. a) How should you calculate and record inventory shrinkage? Learning Objective 5: Describe and illustrate the use of the ratio of sales to assets in evaluating a company's operating performance. a) What does the "ratio of sales to total assets" tell us regarding the company's use of assets? Fill-in-the-Blank Equations 1. Sales - = Gross profit 2. Merchandise Inventory account balance - Physical merchandise inventory on hand = 3. Sales/average total assets = Exercises 1. Determine whether each of the following characteristics relates to a merchandising or service business. a. At year end, the company holds merchandise inventory that was not sold during the year. b. The company's financial statements do not list cost of merchandise. c. The company's largest current asset is inventory that is listed on the company's balance sheet. 2. Jeffs Bikes had sales on account of $3,900 and cash sales of $1,200. If the company's cost of the merchandise was $1,100, what is the company's gross profit? 3. A company had a gross profit of $4,500. If the cost of the merchandise was $2,150, what were the company's total sales? 4. Torti Co. had cash sales of $2,760 and sales on account of $8,200. The company's gross profit at the end of the year totaled $5,590. What was the cost of the merchandise for Torti Co.? Exercises 1. Determine whether each of the following characteristics relates to a merchandising or service business. a. At year end, the company holds merchandise inventory that was not sold during the year. b. The company's financial statements do not list cost of merchandise. c. The company's largest current asset is inventory that is listed on the company's balance sheet. 2. Jeff's Bikes had sales on account of $3,900 and cash sales of $1,200. If the company's cost of the merchandise was $1,100, what is the company's gross profit? 3. A company had a gross profit of $4,500. If the cost of the merchandise was $2,150, what were the company's total sales? 4. Torti Co. had cash sales of $2,760 and sales on account of $8,200. The company's gross profit at the end of the year totaled $5,590. What was the cost of the merchandise for Torti Co.? 5. A company's manager would like to know how many of a certain product is on hand in order to fulfill a large upcoming order. If the manager can pull up a report to show the inventory on hand at any time, what kind of inventory system does the business use? 6. Before preparing the balance sheet at year end, a company must count all inventory on hand. To find the cost of the merchandise sold, the accountants compare the inventory at the beginning of the year to the amount of inventory counted at the end of the year and purchases during the year. Does the company operate using a perpetual or periodic inventory system? 7. A company records the sales and purchases of merchandise as the transactions occur. The accountant also reviews the totals regularly to check the totals among journals. Does the company use a perpetual or periodic inventory system
