Accounting Question
Assume you are opening a Bed, Bath and Beyondstore. To finance the business, you need a $500,000 loan, and yourbanker requires a set of forecasted financial statements. Assumeyou are preparing the statements and must make some decisions abouthow to do the accounting for the business. Answer the followingquestions:
1) Which type of inventory system will you use? Give areason.
2) Show how to compute net purchases and net sales. How will youtreat the cost of transportation in?
3) How often do you plan to do a physical count of inventory onhand? What will the physical count accomplish?
4) Inventory costs are rising. Which invnetory costing method willyou use in order to:
a) Maximize net income?
b) Pay the least amount of income tax?
Accounting Question
Assume you are opening a Bed, Bath and Beyondstore. To finance the business, you need a $500,000 loan, and yourbanker requires a set of forecasted financial statements. Assumeyou are preparing the statements and must make some decisions abouthow to do the accounting for the business. Answer the followingquestions:
1) Which type of inventory system will you use? Give areason.
2) Show how to compute net purchases and net sales. How will youtreat the cost of transportation in?
3) How often do you plan to do a physical count of inventory onhand? What will the physical count accomplish?
4) Inventory costs are rising. Which invnetory costing method willyou use in order to:
a) Maximize net income?
b) Pay the least amount of income tax?
Related questions
2. You are auditing the financial statements of a cosmeticsdistributor that sells thousands of individual items. Thedistributor keeps its inventory in its distribution center and intwo public warehouses. At the end of each business day, it updatesits inventory file, whose records contain the following data:
Item number | Cost per item |
Item description | Date of last purchase |
Quantity-on-hand | Date of last sale |
Item location | Quantity sold during year |
You will use audit software to examine inventory data as of thedate of the distributorâs physical inventory count. You willperform the following audit procedures:
Observe the distributorâs physical inventory count at year-endand test a sample for accuracy.
Compare the auditorâs test counts with the inventoryrecords.
Compare the companyâs physical count data with the inventoryrecords.
Test the mathematical accuracy of the distributorâs finalinventory valuation.
Test inventory pricing by obtaining item costs from buyers,vendors, or other sources.
Examine inventory purchase and sale transactions on or near theyear-end date to verify that all transactions were recorded in theproper accounting period.
Ascertain the propriety of inventory items located in publicwarehouses.
Analyze inventory for evidence of possible obsolescence.
Analyze inventory for evidence of possible overstocking orslow-moving items.
Test the accuracy of individual data items listed in thedistributorâs inventory master file.
Describe how the use of the audit software package and a copy ofthe inventory file data might be helpful to the auditor inperforming each of these auditing procedures.
