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Chapter 2, problem 37
Consider the following cost items:
1. Salaries of players on the Boston Red Sox salaries in an expense and will be found on
an income statement.
2. Year-end completed goods of Levi Strauss jeans is an asset and will be found on a
balance sheet and schedule of cost-of-goods manufactured.
3. Executive compensation costs at Home Depot is an expense and will be found on an
income statement.
4. Advertising costs for Sony is an expense and will be found on an income statement.
5. Costs incurred during the period to insure a Ford plant against fire and flood losses is
an expense and will be found on the schedule of cost-of-goods manufactured.
6. Current year’s depreciation on a Carnival Cruise Line ship is an expense and will be
found on an income statement.
7. The cost of chemicals and paper used during the period by Kodak is a direct
manufacturing expense and will be found on the schedule of cost-of-goods
manufactured.
8. Assembly-line wage cost incurred at a Kona bicycle plant - is a direct manufacturing
expense and will be found on the schedule of cost-of-goods manufactured.
9. Year-end production in process at Gateway Computer is an asset and will be found on
a balance sheet and schedule of cost-of-goods manufactured.
10. The cost of products sold to customers of a Target store is an expense and will be
found on an income statement.
11. The cost of products sold to distributors of a carpet manufacturer, such a Shaw or
Dalton is an expense and will be found on an income statement.
What major asset will normally be insignificant for service enterprises and relatively
substantial for retailers, wholesalers, and manufacturers? Briefly discuss.
o Inventory assets are usually insignificant for services companies, while they are
substantial for retailers, wholesalers and manufacturers. Service businesses
typically do not have any inventory, while retailers and wholesalers normally
carry considerable inventory. Manufacturers carry significant inventories, usually
segmented into raw materials, work in progress and finished products.
Briefly explain the major differences between income statements of service enterprises
versus those of retailers, wholesalers and manufacturers.
o The income statement of a service business does not have inventoried product
costs and the cost of producing services is called operating expense and they are
treated as period costs and expensed as incurred. Retailers, wholesalers and
manufacturers usually have inventoried costs like direct material and direct labor
and direct overhead costs. They are expensed as cost of goods sold when the
related inventory is sold.

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Chapter 2, problem 37 Consider the following cost items: 1. Salaries of players on the Boston Red Sox – salaries in an expense and will be found on an income statement. 2. Year-end completed goods of Levi Strauss jeans – is an asset and will be found on a balance sheet and schedule of cost-of-goods manufactured. 3. Executive compensation costs at Home Depot – is an expense and will be found on an income statement. 4. Advertising costs for Sony – is an expense and will be found on an income statement. 5. Costs incurred during the period to insure a Ford plant against fire and flood loss ...
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