5–2 The Electronics Store reported the information shown below.

Required 1. Is The Electronics Store a merchandising entity, a service business, or both? How can you tell? List the items in The Electronics Store financial statements that influence your answer.
2. Compute The Electronics Store’s gross margin for fiscal years 2010 and 2009. Did the gross margin increase or decrease in 2010? Is this a good sign or a bad sign about the company?
3. Write a brief memo to the owner advising her of The Electronics Store’s trend of sales, gross margin, and net income. Indicate whether the outlook for The Electronics Store is favourable or unfavourable, based on this trend. Use the following memo format:

THE ELECTRONICS STORE Income Statement (Dollars in thousands) Fiscal Year Ended January 31, January 31, 2010 2009 Net sales... $9,000 $8,550 Costs and expenses: Cost of goods sold.. 6,300 6,030 Selling, advertising, general, and administrative.. 1,830 1,710 Amortization.... 186 173 Other expenses.. 54 355 Interest expense. 90 94 Other income (expenses).. (17) (17) 8,443 8,345 Net earnings. $ 557 $ 205 THE ELECTRONICS STORE Assets Current assets: Cash Balance Sheet (partial) (Dollars in thousands) Accounts and other receivables.. Inventory... Prepaid expenses and other current assets Total current assets. January 31, 2010 January 31, 2009 $ 690 130 1,990 $ 185 208 1,800 40 80 $2,850 $2,273