Assume that you are a staff accountant at BikeBuild, a manufacturer of high end off-road bicycles. BikeBuild uses a perpetual inventory system and prepares annual financial statements on December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill because of BikeBuild's poor cash management. On November 15, excess inventory of bike parts (raw materials) was purchased in anticipation of an expected increase in bicycle production which will begin in January. To decrease the company's tax liability, the chief financial officer tells you to record the purchase of this inventory as part of supplies and expense it in the current year; this would decrease the company's tax liability by increasing expenses. 1. In which account should the purchase of bicycle parts be recorded? 2. How should you respond to this request by the chief financial officer?
Assume that you are a staff accountant at BikeBuild, a manufacturer of high end off-road bicycles. BikeBuild uses a perpetual inventory system and prepares annual financial statements on December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill because of BikeBuild's poor cash management. On November 15, excess inventory of bike parts (raw materials) was purchased in anticipation of an expected increase in bicycle production which will begin in January. To decrease the company's tax liability, the chief financial officer tells you to record the purchase of this inventory as part of supplies and expense it in the current year; this would decrease the company's tax liability by increasing expenses.
1. In which account should the purchase of bicycle parts be recorded?
2. How should you respond to this request by the chief financial officer?
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