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.

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

2. Inventory will be a relatively substantial asset on the balance sheets of retailers, wholesalers, and manufacturers whereas it will be insignificant for service enterprises. Retailers and wholesalers will have substantial inventories of merchandise (finished goods) while manufacturers will have raw materials, work-in-process, and finished goods inventories. Service enterprises may have very insignificant 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.