1. Question 1: Mastery: Describe the main differences between the income statements of a service business and a merchandise business. The difference between the income statements of a service business and a merchandise business focuses on how the profitability or net profit of the business is determined. To determine the net profit of a service business, the total expenses incurred during an accounting period are deducted from the revenues earned. A merchandise business is a more complex operation; therefore, it would have a more complex method of obtaining its net profit. A merchandise business deducts the cost of goods sold (the amount of revenue) from its revenue to arrive at its gross margin. Then expenses (operating costs) are deducted from the gross margin to reach the net result. These are three elements that help create the net income or net loss of a merchandising business that shows the profitability of the business. Distinguished: In detail, describe how a merchandising company's gross profit is determined. The gross profit of a merchandising business is determined by taking the gross sales. and reducing it by sales discounts and return allowances to obtain net sales, the cost of goods sold is subtracted from the total net sales, to which gross profit is equal.2. Question 2: Mastery: As part of calculating cost of goods sold, it is necessary to determine the value of goods on hand, called merchandise inventory. Accountants use two basic methods to determine the amount of merchandise inventory. Identify the two methods and describe the circumstances (including examples of users of each method) in which each method would be used. Perpetual inventory and periodic inventory are the two types of accounting inventories...... middle of paper.... ..ket is very competitive and their price increase is limited. ReferencesAverkamp, ​​​​H. (January 1, 2014). Accounting principles | Explanation | Accounting Coach. AccountingCoach.com. Accessed May 2, 2014, from http://www.accountingcoach.com/accounting-principles/explanationConsultants. (January 1, 2012). Free Industry Statistics - Sorted by highest gross margin. Free industry statistics: gross margin: Butler Consultants. Retrieved May 3, 2014 from http://research.financial-projections.com/IndustryStats-GrossMargin.htmlHermanson, R., Edwards, J. and Maher, M. (2010).Accounting principles: a business perspective. (Vol.2). Manuel Équité inc. DOI: www.textbookequity.comSiegel Ph.D. CPA, Joël G.; Cale Ph.D., Jae K. (02/01/2010). Dictionary of Accounting Terms (Barron's Dictionary of Accounting Terms) (p. 129). Barron's Educational Series. Kindle Edition.