Question Chapter 6

Assume you are opening a furniture store. To finance the business, you need a $500,000 loan, and your banker requires a set of forecasted financial statements. 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:

1-Which type of inventory system will you use: perpetual or periodic? Explain your reason.

2-Show how to compute net purchases and net sales revenue. 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 physical count accomplish?

4-Inventory costs are rising. Which inventory costing method would have the effect of

A-maximizing net income?

B-minimizing the amount of income tax?