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000 000 600 000 200 Brief Exercises, DO IT! Exercises, available for practice in WileyPLUS. NOTE. A asterisked Questions, Exercises and Proble WileyPLUS Bri DO ITI Exercises, Exercises, Problems, and many additional resources are is relate to material in the appendix to the chapter. QUESTIONS (a) The steps in the accounting cycle for a mer chandising company differ from the steps in the accounting cycle for a service company." Do you agree or disagree? (b) is the measurement of net income in a merchan- dising company conceptually the same as in a service company? Explain. 2. How do the components of revenues and expenses differ between a merchandising company and a ser- vice company? 3. Maria Lopez, CEO of Sales Bin Stores, is con- sidering a recommendation made by both the com- pany's purchasing manager and director of finance that the company should invest in a sophisticated new perpetual inventory system to replace its periodic system. Explain the primary difference between the two systems, and discuss the potential benefits of a perpetual inventory system. 4. (a) Explain the income measurement process in a merchandising company. (b) How does income measurement differ between a merchandising company and a service company? 5. Waymon Co. has net sales of $100,000, cost of goods sold of $70,000, and operating expenses of $18,000. What is its gross profit? 6. Masie Ascot believes revenues from credit sales may be recorded before they are collected in cash. Do you agree? Explain. e of

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Answer 1

The Primary difference between periodic inventory system and perpetual inventory system is that the perpetual inventory system is updated on a continual basis like daily and provides a detailed information of inventory balances and under the periodic inventory system updates accounts on a periodic basis like monthly based on the physical count of inventory.

Potential Benefits of Perpetual Inventory System:

1. Easy to find any theft and shrinkage happened at a particular point of time because the books are maintained on a continual basis

2. Gives accurate information of inventory balance which helps in achieving true and fair view of financial statements

3. Helps in Management of inventory levels like in calculating ratios of inventory turnover ratio.

4. Helps in restocking inventory accurately.