Assume that you are the managerial accountant at Data Store, a manufacturer of h
ID: 2373976 • Letter: A
Question
Assume that you are the managerial accountant at Data Store, a manufacturer of hard drives, CDs and diskettes. Its reporting year-end is December 31. The chief financial officer is concerned about having enough cash to pay the expected income tax bill due to poor cash flow management. On Nov. 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%u2019s tax liability, the chief financial officer tells you to record the purchase of this inventory as part of your supplies and expense it in the current year; this action would decrease the company%u2019s tax liability by increasing expenses.
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?
Explanation / Answer
Ans:- 1).It should be recorded in the Raw Materials Inventory Account.
2).Tell him/her that what they are suggesting is unethical, and illegal (tax fraud), and that you will not record the suggested adjustment. if (s)he insists, tell them that you will report the request to the internal audit department, or to another member of senior management.
Then start looking for another job, as this doesn't sound like a company that you want to work for, or one that will survive much longer.
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