8. Decision Case 6-1 Assume you are opening a Bed Bath & Beyond store. To finance the busi- ness, you need a $500,000 loan, and your banker requires a set of forecasted financial state- ments. Assume you are preparing the statements and must make some decisions about how to do the accounting for the business. Requirements Answer the following questions (refer to Chapter 5 if necessary): 9. 1. Which type of inventory system will you use? Perpetual or Periodic? Give your reason. 2. Show how to compute net purchases (see the vocabulary list in Chapter 5 for the definition of "net purchases") and net sales. How will you treat the cost of freight in? 3. How often do you plan to do a physical count of inventory on hand? What will the physi cal count accomplish? 4. Inventory costs are rising. Which inventory costing method would have the effect of a. maximizing net income? b. paying the least amount of income tax? Method A Late On Demand purchased a coffee drink machine on January 1, 2011, for $44,000. Expected useful life is 10 years or 100,000 drinks. In 2011, 1,000 drinks were sold and in 2012, 14,000 drinks were sold. Residual value is $4,000. Under three depreciation methods, annual depreciation and total accumulated depreciation at the end of 2011 and 2012 are as follows Method C Method B Annual Depreciation Annual Accumulated Depreciation Accumulated Annual Depreciation Year Expense Depreciation 2011 2012 $1,200 1,600 $1,200 6,800 Expeme $8,800 Depreciation Expense Accumulated Depreciation $8,800 $4,000 $4,000 7,040 15,840 4,000 1,000 Requirements 10. 1. Identify the depreciation method used in each instance, and show the equation and computation for each method. (Round to the nearest dollar.) 2. Assume use of the same method through 2013. Compute depreciation expense, accumulated depreciation, and net book value for 2011-2013 under each method, assuming 12,000 drinks were sold in 2013. West Virginia Power Company has 8%, 10-year bonds payable that mature on June 30, 2023. The bonds are issued on June 30, 2013, and West Virginia Power pays interest each June 30 and December 31. Requirements 1. Will the bonds be issued at face value, at a premium, or at a discount if the mar- ket interest rate on the date of issuance is 7%? If the market interest rate is 10%? 2. West Virginia Power issued $100,000 of the bonds at 87.548. Round all cal- culations to the nearest dollar. a. Record issuance of the bonds on June 30, 2013. b. Record the payment of interest and amortization of the discount on December 31, 2013. Use the straight-line amortization method. c. Compute the bonds' carrying amount at December 31, 2013. d. Record the payment of interest and amortization of discount on June 30, 2014.