Answer to Question 1
The following accounts in the merchandising company would not
appear in the financial statements of a servicing company-
(a) Cost of goods sold
(b) Inventory
Answer to Question 2
Sales discounts are discount provided by the company upon sale of goods to its customers. It is an expense in the income statement.
Purchase discounts are discount received by the company upon purchase of goods from its suppliers. It is an income in the income statement.
Answer to Question 3
The multi-step income statement provides gross profit in addition to the single step income statement. It separates the purchase or trading related expenses from other operating expenses.
Hence, a financial statement user may prefer multi-step income statement over the single-step income statement.
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