Inventory Valuation and Credit
TASK 1
Inventory Valuation and Credit
To begin, read the following scenario:
Company 1 and Company 2 are online retailers. Both companies are basically identical and follow the same accounting practices except that Company A uses LIFO and Company B uses FIFO to value their inventory. Because of rising inventory costs, both companies need additional capital to manage their operations.
For your initial discussion post, reflect on these questions:
- If Company A and Company B apply for a loan at their local bank and the bank bases its decision on net income, which company is more likely to obtain the loan? Explain.
- What if the bank based its decision on cash flows associated with the inventory costing valuation method the company uses? Which company might be better positioned to obtain the loan? Elaborate your responses and provide an example as needed to support your assessment.
For your responses, focus on the following questions: Do you agree with your classmates’ responses as far as which company might obtain the loan if the bank bases its decision on net income and/or cash flows? Why or why not? How has the discussion impacted your understanding of the effects of FIFO and LIFO inventory methods on net income and cash flows? Support your responses to classmates with additional research and/or examples of your understanding of these inventory valuation methods.
Be sure to post at least one reference in support of your explanations and conclusions.
Task 2
Financial Controls of Cash
To begin, read the following case scenario:
Luann Buell works as a teller for a local Credit Union. When she arrived at work on Thursday, the branch manager, Mike Stokey, asked her to get her cash drawer out early because the head teller, Jim Best, was conducting a surprise cash count for all the tellers. Luann’s drawer was $50 short and her reconciliation tape showed that she was in balance on Wednesday night. Jim asked Luann for an explanation and Luann immediately took $50 out of her wallet and handed it to him. Luann explained she needed the cash to buy prescriptions for her son and pay for groceries and intended to put the $50 back in her cash drawer on Friday, which is pay day. She also told Jim that this was the first time she had ever “borrowed” money from her cash drawer and that she would never do it again.
For your initial discussion post, identify the ethical considerations of this case from both Luann’s (teller) and Jim’s (head teller) perspectives. What options does Jim have to address this problem? Assume Jim chooses to inform the branch manager, how should he approach the issue with his boss? Additionally, brainstorm at least four ideas to safeguard cash on hand at the credit union (petty cash, teller drawer cash, and vault cash) from employee theft and mismanagement.
Responses to others should focus on the commonalities and differences regarding the ethical considerations presented from both Luann’s and Jim’s perspectives. Do you agree with the options posted regarding how Jim may be able to address this issue and how he should approach the branch manager with his findings? What insight have you gained from the suggestions offered to safeguard cash on hand at the credit union? What additional suggestions can you offer?
Be sure to post at least one reference in support of your explanations and conclusions.
Task 3
Accounting Systems
To begin, read the following scenario, then answer the questions in your initial post:
You are the owner of a small retail store that sells electronics such as smartphones, tables, and peripherals. Your business currently has just a few vendors and most of your purchases are transacted on credit. Sales are primarily in cash. Your goal is to grow your small business and to achieve this goal, your supplier base will increase significantly in order to meet the demand you expect. Most sales will continue to be in cash. However, you have been approached by local companies that wish to purchase products from your business on credit. Presently, you record all transactions in the general journal and the general ledger but wonder if you will be able to continue doing so once your business volume increases as you expect.
- Given your expected business growth, what changes will you make to your present accounting system, based on your learning from the current lesson?
- You are used to checking your ledger by using a trial balance. Based on the changes you will make to your present accounting system, what other verification method(s) will you use?
- Explain the advantages of your expanded accounting system over your present account system.
For your responses, focus on the following questions: Do you agree with your classmates’ responses as far as their proposed expanded accounting system? Do you have additional suggestions that would make their expanded accounting system more streamlined? Elaborate. Support your responses to classmates with additional research and/or examples of your understanding of expanded accounting systems.
Be sure to post at least one reference in support of your explanations and conclusions.
Task 4
