The financial statements for Reitmans (Canada) Limited are reproduced in Appendix A at the end of this text.
Instructions
(a) Is Reitmans a service company or a merchandising company?
(b) Reitmans does not disclose in its financial statements or notes if it uses a periodic or perpetual inventory system. Why do you think that readers of the financial statements do not need to know that information? What inventory system do you think it uses and why?
(c) Does Reitmans use a single-step or multiple-step income statement format?
(d) What non-operating revenues and non-operating expenses are included in Reitmans' income statement?
(e) Does Reitmans show the amount of sales returns? Why do you think it does this?
(f) Read the parts of Note 2 (d) and Note 3 (l) related to sales returns. Why do you think Reitmans needs to record estimated possible returns? Is it appropriate to use an estimate in fi nancial statements?
(g) Also read Note 12. What is Reitmans' estimated amount of sales returns at January 28, 2012? What journal entry do you think the company used to record that amount?
(h) Read Note 3 (h). How does Reitmans account for the cost of freight on purchases of inventory? Is this consistent with what you learned in this chapter?