Assume that you are the managerial accountant at InfoStore, a manufacturer of ha
ID: 2418715 • Letter: A
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 of the next year. 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 as this would decrease the company’s tax liability by increasing expenses.
Discuss the account to which the CDs should be recorded and identify the materials in terms of cost. How should you report to this request by the chief financial officer? Are there any ethical reporting aspects to consider?
Explanation / Answer
Purchase of excess inventory of CDs should be reported as an inventory, and not to be expense out.
If this is put as part of supplies and expense it in the current year as this would decrease the company’s tax liability by increasing expenses. But this will be unethical as it will be called manipulating with the data.
We will request the chief financial officer to treat this purchase as an inventory, and we should look for some finance to pay the taxes. If we take some loan and then repay it with interest later on, it will not make our accounts incorrect. And we will not commit any unethical act.
However, if chief financial officer still not agree to my request, I will report this to the president of the company, and will take his help to record the purchases correctly.