Q16E - Horngren'S Financial And Managerial Accounting

Question

Selected data for three companies are given below. All inventory amounts are ending balances and all amounts are in millions.

Company A                                          Company B                                                Company C 

Cash \( 6                                              Wages Expense \) 12                            Administrative Expenses $ 4 

Net Sales Revenue 48                        Equipment 32                                      Cash 25 

Finished Goods Inventory 10          Accounts Receivable 8                        Net Sales Revenue 75 

Cost of Goods Sold 23                      Service Revenue 65                               Selling Expenses 8

 Selling Expenses 4                            Cash 34                                                  Merchandise Inventory 12 

 Equipment 67                                   Rent Expense 12                                  Equipment 55 

Work-in-Process Inventory 9                                                                         Accounts Receivable 19 

Accounts Receivable 14                                                                                  Cost of Goods Sold 25

Cost of Goods Manufactured 23 

Administrative Expenses 7 

Raw Materials Inventory 6

Identifying differences between service, merchandising, and manufacturing companies 

Using the above data, determine the company type. Identify each company as a service company, merchandising company, or manufacturing company

Step-by-Step Solution

Answer

Company A is a manufacturing company, company B is a service company and company C is a merchandising company.

Step-by-Step Solution Step 1: Company A

Company A is a manufacturing company, as the particulars given for company A include the work-in-process inventory, cost of goods manufactured, finished goods inventory, cost of goods sold, and the raw materials inventory.

Step 2: Company B

Company B is a service company as its’ particulars include service revenue, service companies provide the services to the clients.

Step 3: Company C

Company C is a merchandising company as its particulars include the merchandise inventory, this is the only type of inventory held by the merchandising company.