A memo to the owners of Cherry & White Bike Company explaining and justifying the following accounting choices:Accounting for inventory: inventory cost flow methods.

Determine possible alternatives and select a cost flow method for accounting for the racing bike inventory.

Explain why you select the alternative that you use in the financial statements.

Present an analysis of the alternatives.

Show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.

Examine the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.

Assume that CWB also used the method you selected or their standard bikes and childrens bikes.

Accounting for equipment: purchase price and subsequent measurement.

Determine possible alternatives.

Explain why you select the alternative that you use in the financial statements.

Present an analysis of the alternatives.

Show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.

Examine the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.

You may consider looking at the Accounting Standards Codification (ASC) for guidance on accounting and alternatives.

CWB offers bike tune-ups for $70each. CWBs employees are experts in adjusting brakes. Below is the number of tune-ups performed in each month. All customers pay in cash. (For recording the transactions, you can assume all tune-ups are done the last day of the month).

Month	Number of Tune-Ups
January	14
February	36
March	29

CWB has the following purchases and sales of racing bikes (there were no racing bikes in beginning inventory)*:

Date	Transaction	Quantity	Cost per Bike	Sales Price per Bike
January 15	Purchase	10	$140
January 25	Purchase	15	$145
February 12	Sale	14		$635
February 13	Purchase	12	$170
March 1	Sale	20		$645
March 20	Purchase	8	$180

*All purchasers of racing bikes are given two years of complimentary tune-ups. No tune-ups on bikes sold were performed in the current quarter.

**All purchases were made using cash except the March 20th purchase for which CWB obtained three-months credit from the bike supplier.

CWB has 25standard bikes in beginning inventory. The bikes were purchased at a price of $101each. The following purchases and sales of standard bikes occurred during the quarter:

Date	Transaction	Quantity	Cost per Bike
January 31	Sale	15
February 17	Purchase	19	$111
February 19	Sale	27
March 2	Purchase	22	$118

+All purchasers of standard bikes are given the option of buying a bike for $275,or a bike with two years of tune-ups for $350.Three of the bikes sold on February 19^thwere sold with the tune-up option.No tune-ups on bikes sold were performed in the current quarter.

CWB has 12 childrens bikes in beginning inventory. The bikes were purchased at a price of $98 each. The following purchases and sales of childrens bikes occurred during the quarter^:

Date	Transaction	Quantity	Cost per Bike	Sales Price per Bike
January 3	Purchase	30	$95
January 25	Sale	15		$175
February 12	Sale	21		$180
February 13	Purchase	15	$99
March 11	Sale	9		$175

^Tune-ups are not usually performed on childrens bikes

CWB owns various tools and equipment which it pools for purpose of calculating depreciation. In the past it has used straight-line depreciation over a ten-year period with no scrap or salvage value for these assets. However, with technology changing rapidly, CWB questions whether it will have to replace the equipment earlier.