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Protection of Small Business

Wed, 14 Jul 2010 12:55:42 +0000

There is no doubt that hostility toward big business – at that time an unfamiliar from of enterprise – motivated the passage of the Sherman act. From this point of departure, critics of the antitrust laws sometimes assert that the antitrust laws have served to protect small business from the competition of rivals. Despite a few statements in debate that indicate concern for the fate of the individual competitor, the consensus in that the protection of small forms was not among the original goals of the Sherman act.

Recall that section 2 of the Sherman act prohibits monopolization, not monopoly. It seems clear that this section reflects the intent of congress to permit market power acquired by competition on the merits. In a revealing exchange, the senator from West Virginia asked:

Purpose a citizen of Kentucky is dealing in shorthorn cattle and by virtue of his superior skill in that product it turns out that he is the only one in the united states to whom an order comes from Mexico for cattle of that stock for a considerable period, so that he is conceded to have a monopoly of that trade with Mexico; is it intended by the committee that the bill shall make that man a culprit?

Monopolistic Pricing

Thu, 24 Jun 2010 12:52:50 +0000

Income transfer is a tangible and obvious effect of monopolistic pricing. Resource allocation is an intangible and subtle effect. It is clear from the congressional debates that senators knew that monopolistic pricing transferred income from consumers to producers. Speaking in support oh his bill, Senator Sherman said;

This bill does not seek to cripple combination of capital and labor, the formation of partnership or of corporations, but only to prevent and control combination made with a view to prevent competition, or for the restraint of trade, or to increase the profits of the producer at the cost of the consumer emphasis added.

Bork describes this as a consumer welfare goal, which by ordinary usage might be taken to mean the maximization of consumer surplus or, equivalently, the minimization of profits plus dead weight loss. It is by now reasonably well understood in the literature that what Bork means by consumers welfare would be more descriptively referred to as producer plus consumer welfare; in the phrase of the march 1987 national association of attorneys general horizontal merger guidelines: “for the unwary judge or practitioner stumbling upon this term it is important to understand . . . that ‘consumer welfare’, when used in this manner, has nothing to do with the welfare of consumers. “ on pedagogical grounds, it seems best to avoid Bork’s misleading terminology in a textbook.

Trial Balance Columns

Sat, 12 Jun 2010 13:19:23 +0000

Data for the trial balance are obtained from the ledger balances of Highpoint Electronic at December 31. The amount shown for Merchandise Inventory, $36,000, is the beginning inventory.
Adjustments Columns
A merchandising company generally have the same types of adjustments as a service company. As you see in the work sheet, adjustments (a), (b), and (c) are for insurance, depreciation, and salaries. These adjustments were also required for Pioneer Advertising Agency, as illustrated in Chapters 3 and 4.
After all adjustment data are entered on the work sheet, the equality of the adjustment column totals is established. The balances in all accounts are then extended to the adjusted trial balance columns.2
Adjusted Trial Balance
The adjusted trial balance shows the balance of all accounts after adjustment at the end of the accounting period. Note that beginning inventory was not adjusted. Therefore it is extended to the adjusted trial balance in the amount of $36,000.
Income Statement Columns
The accounts and balances that affect the income statement are transferred from the adjusted trial balance columns to the income statement columns. For High- point Electronic, Sales of $480,000 is shown in the credit column whereas the contra revenue accounts, Sales Returns and Allowances of $12,000 and Sales Discounts of $8,000, are shown in the debit column. Thus, the difference of $460,000 is the net sales shown on the income statement. Similarly, Purchases of $325,000 and Freight-in of $12,200 are extended to the debit column. The contra purchase accounts, Purchase Returns and Allowances of $10,400 and Purchase Discounts of $6,800, are extended to the credit columns.

Cost of Goods Sold

Tue, 25 May 2010 13:14:44 +0000

As you learned earlier in this chapter, the second factor in measuring net income SUBJECTIVITY in a merchandising company is the cost of goods sold. The cost of goods sold may be determined each time a sale occurs or at the end of an accounting period. State the steps in to make the determination when the sale occurs, a company uses a perpetual determining cost of inventory system. Under this system, detailed records of the cost of each inventor sold. Tory item are maintained and continuously show the inventory that should be on hand. For example, a Ford dealership will have separate inventory records for each Escort, Tempo, Taurus, and Thunderbird. When a car is sold, its cost is obtained from the inventory records. Perpetual inventory systems have traditionally been used by companies that sell high unit-value items such as automobiles, furniture, television sets, and large home appliances.
When cost of goods sold is determined only at the end of an accounting period, a company is said to be using a periodic inventory system. This system is widely used by companies that sell thousands of low unit-value items, such as Walt-Mart, True Value hardware stores, and Recall drugstores. Most businesses employ the periodic inventory system because they can control merchandise and manage day-to-day operations without detailed inventory records. In addition, perpetual systems are expensive, and often the benefits they offer do not justify their cost.

Purchase Returns and Allowances

Sun, 09 May 2010 13:17:16 +0000

A sales return and allowance on the seller’s books is recorded as a purchase return and allowance on the books of the purchaser. The purchaser initiates the request for a reduction of the balance due through the issuance of a debit memorandum. A debit memorandum is a document issued by a buyer to inform a seller that a debit has been made to the seller’s account. The original copy of the memorandum is sent to the seller and one copy is retained by the purchaser. The information contained in a debit memorandum is similar to the information found in the credit memorandum in Illustration 5-4 (p. 184). The entry by Chelsea Video for the merchandise returned on May 8 is:

Purchase Returns and Allowances represent a reduction in the cost of goods purchased for resale. It is a contra account to Purchases and its normal balance is a credit. The contra account is used instead of crediting Purchases in order to disclose both the dollar amount of returns and allowances and the percentage of gross purchases that have proven to be unsatisfactory. Excessive purchase returns and allowances may indicate inefficiencies in a company’s purchasing procedures or the need to find more reliable suppliers.
Credit memorandums and debit memorandums derive their names from the action that the issuer takes on the accounts receivable or payable carried on its books. The purchaser sends a debit memorandum to indicate a debit to Accounts Payable and a credit to Purchase Returns and Allowances. Similarly, a seller issues a credit memorandum to indicate a credit to Accounts Receivable and a debit to Sales Returns and Allowances.
Purchase Discounts
Credit terms may permit the buyer to claim a cash discount for the prompt payment of a balance due. The buyer calls this discount a purchase discount. Like a sales discount, a purchase discount is based on the invoice cost less returns and allowances, if any. Purchase Discounts is credited for discounts that are taken