Assume that you are the managerial accountant at Infostore, a manufacturer of ha

Question

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.

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

          2. How should you respond to this request by the chief financial officer?
Tell him that what they are suggesting is unethical, and illegal (tax fraud), and that you will not record the suggested adjustment. if he insists, tell them that you will report the request to the internal audit department, or to another member of senior management.

          1. In which account should the purchase of CD raw materials be recorded?
It should be recorded in the Raw Materials Inventory Account

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