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Principles of Accounting, Volume 1: Financial Accounting

Thought Provokers

Principles of Accounting, Volume 1: Financial AccountingThought Provokers

Thought Provokers

TP 1.

LO 6.1Conduct research on a real-world retailer’s trade discounts and policies, and discuss the following questions.

  • Which company did you choose? What do they sell?
  • What is a trade discount?
  • What products are subject to a trade discount?
  • Describe the discount terms/program in detail. Give examples.
  • Are there any restrictions?
  • What incentive does this company have to give a trade discount?
  • How does this discount benefit the buyer?
  • If the buyer had to choose between receiving a trade discount or regular cash purchase discount, which would benefit them more? Why?
TP 2.

LO 6.2You have decided to open up a small convenience store in your hometown. As part of the initial set-up process, you need to determine whether to use a perpetual inventory system or a periodic inventory system. Write an evaluation paper comparing the perpetual and periodic inventory systems. Describe the benefits and challenges of each system as it relates to your industry and to your business size. Compare at least one example transaction using the perpetual and periodic inventory systems (a purchase transaction, for example). Research and describe the impact each system has on your financial statements. Decide which system would be the best fit for your business, and support your decision with research.

TP 3.

LO 6.5You own your own outdoor recreation supply store. You are in the process of drafting a standard invoice agreement for customer sales conducted on credit. Create a sample sales invoice with the following minimum information listed:

  • Your company information
  • Date of sale
  • Your customer’s information
  • An example product you sell with name, description, price per unit, and number of units sold
  • Terms of sale including credit terms and shipping charges, with numerical figures for shipping charges
  • Any contract language necessary to further establish the terms of sale (for example, warranties, limitations on shipping, and returns)

Write a reflection about your invoice choice, as it relates to format, terms, contract language, and pricing strategies. Conduct a comparison study to others in your industry (such as REI) to evaluate your choices. Make sure to support your decisions with concrete examples and research.

TP 4.

LO 6.6Review the most recent yearly (or quarterly) income statement for a publicly-traded company and answer the following questions.

  • What company did you choose, and which income statement format do they use (multi-step, simple, or combination)?
  • What information is included on the statement?
  • Do you agree with the format presentation? Why or why not?
  • What are the benefits and limitations with the income statement format choice?
  • Compute the Gross Profit Margin Ratio. Discuss the results.
TP 5.

LO 6.7You own a clothing store and use a periodic inventory system. Research like companies in the clothing industry and answer the following questions.

  • Which inventory system is most used in clothing stores, periodic or perpetual?
  • Why can periodic inventory reporting be a better approach to use than perpetual inventory reporting for this type of industry?
  • What are some of the advantages and disadvantages to the periodic inventory method?
  • What other types of businesses may use the periodic inventory method rather than the perpetual method?
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