Assume you are opening a Bed Bath & Beyond 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 (refer to Chapter 5 if necessary):
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 physical 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?