Opening a Furniture Store and Financing the Business

Assume you are opening a furniture store. To finance the business, you need a $500,000 loan, and your banker requires a set of forecasted financial statements. Assume you are preparing the statements and must make some decisions about how to do the accounting for the business.

Answer the following questions:

  • Which type of inventory system will you use: perpetual or periodic? Explain your reason.
  • How often do you plan to do a physical count of inventory on hand?
  • What will the physical count accomplish?
  • Inventory costs are rising. Which inventory costing method would have the effect of maximizing net income and minimizing the amount of income tax?