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Use the Statement and Costing Ethics Template linked in the resources to complete the following in your Financial and Managerial Accounting textbook:
? Problem 14-3B, page 665.
? Ethics Challenge, page 667.
Problem 14-3B
Schedule of cost of goods manufactured and income statement; analysis of inventories
P2
A1
Using the information from Problem 14-2B and the following additional inventory information for Best Bikes, complete the requirements below. Assume income tax expense is $136,700 for the year.
Required
1. Prepare the company’s 2017 schedule of cost of goods manufactured.
Check
u2003 (1) Cost of goods manufactured, $1,816,995
2. Prepare the company’s 2017 income statement that reports separate categories for (a) selling expenses and (b) general and administrative expenses.
Analysis Component
3. Compute the (a) inventory turnover, defined as cost of goods sold divided by average inventory, and (b) days’ sales in inventory, defined as 365 times ending inventory divided by cost of goods sold, for both its raw materials inventory and its finished goods inventory. (To compute turnover and days’ sales in inventory for raw materials, use raw materials used rather than cost of goods sold.) Discuss some possible reasons for differences between these ratios for the two types of inventories. Round answers to one decimal place.
ETHICS CHALLENGE
C1
C3
BTN 14-3
Assume that you are the managerial accountant at Infostore, a manufacturer of hard drives, CDs, and DVDs. Its reporting year-end is December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill because of poor cash flow management. On November 15, the purchasing department purchased excess inventory of CD raw materials in anticipation of rapid growth of this product beginning 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.
Required
1. In which account should the purchase of CD raw materials be recorded?
2. How should you respond to this request by the chief financial officer?