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 statement. Assume you are preparing the statements and must make some decisions about how to do the accounting for the business.
• Indicate the type of inventory system you would use and state your reasoning.
• Provide examples to show how you would compute net purchases and net sales, including how you would treat the cost of transportation in.
• Discuss the purpose and frequency of physical inventory counts for this business.
• Assume that inventory costs are rising.
o Which inventory costing method would you use to maximize net income?
o Which inventory costing method would you use if you wanted to pay the least amount of income tax?