Question

Consider the following cost items:
1. Salaries of players on the Boston Red Sox.
2. Year-end completed goods of Levi Strauss jeans.
3. Executive compensation costs at Home Depot.
4. Advertising costs for Sony.
5. Costs incurred during the period to insure a Ford plant against fire and flood losses.
6. Current year’s depreciation on a Carnival Cruise Line ship.
7. The cost of printer ink and paper used during the period by Shutterfly.
8. Assembly-line wage cost incurred at a Kona bicycle plant.
9. Year-end production in process at Lenovo computer manufacturer.
10. The cost of products sold to customers of a Target store.
11. The cost of products sold to distributors of carpet manufacturer Shaw Floors.
Required:
1. Evaluate the costs just cited, and determine whether the associated dollar amounts would be found
on the firm’s balance sheet, income statement, or schedule of cost-of-goods-manufactured. (Note:
In some cases, more than one answer will apply.)
2. What major asset will normally be insignificant for service enterprises and relatively substantial
for retailers, wholesalers, and manufacturers? Briefly discuss.
3. Briefly explain the major differences between income statements of service enterprises versus
those of retailers, wholesalers and manufacturers

Answer 1

1.

	Balance Sheet	Income Statement	Schedule of Cost of Goods Manufactured
1. Salaries of players on the Boston Red Sox.		X
2. Year-end completed goods of Levi Strauss jeans.	X		X
3. Executive compensation costs at Home Depot.		X
4. Advertising costs for Sony.		X
5. Costs incurred during the period to insure a Ford plant against fire and flood losses.			X
6. Current year’s depreciation on a Carnival Cruise Line ship.		X
7. The cost of printer ink and paper used during the period by Shutterfly.			X
8. Assembly-line wage cost incurred at a Kona bicycle plant.			X
9. Year-end production in process at Lenovo computer manufacturer.	X		X
10. The cost of products sold to customers of a Target store.		X
11. The cost of products sold to distributors of carpet manufacturer Shaw Floors.		X

2. Inventory will be an insignificant asset for service enterprises while it will be a relatively substantial asset on the balance sheets of retailers, wholesalers, and manufacturers. Retailers and wholesalers will have substantial inventories of merchandise while manufacturers will have inventories of raw materials, work-in-process, and finished goods. Service enterprises may carry insignificant amounts of inventories such as office supplies.

3. The major difference between the income statements of service enterprises versus those of retailers, wholesalers, and manufacturers is the expense item of cost of goods sold. Since service companies do not have inventories, there is no cost of goods sold on their income statements.