Accounting Cycle Project and Accounting Method Choice

Accounting Project

Instructions

Additional Information Memo on Accounting Method and Estimate Choices

From the Accounting Project Instructions, the second deliverable is a memo to the owners of Cherry & White Bike Company explaining and justifying the following accounting choices. The next pages include a sample start to the memo.

Below the instructions for the second deliverable are repeated. In the memo, you must address the items in the instructions. Your memo should be submitted in Word. Any tables you create in Excel can be pasted into the memo. Your memo should include tables comparing the different alternatives. The memo should be formatted and written as one that you would hand into your employer or a client.

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2. A memo to the owners of Cherry & White Bike Company explaining and justifying the following accounting choices:

a. Accounting for inventory: inventory cost flow methods.

i. Determine possible alternatives and select a cost flow method for accounting for the racing bike inventory.

ii. Explain why you select the alternative that you use in the financial statements.

iii. Present an analysis of the alternatives.

iv. Show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.

v. Examine the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.

Assume that CWB also used the method you selected or their standard bikes and children’s bikes.

b. Accounting for equipment: purchase price and subsequent measurement.

i. Determine possible alternatives.

ii. Explain why you select the alternative that you use in the financial statements.

iii. Present an analysis of the alternatives.

iv. Show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.

v. Examine the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.

To: George and Charlotte, Cherry & White Bike Company

From: [Add]

Re: [Add]

Date: [Add]

This memo explains and justifies the accounting choices in the financial statements. As you know, U.S. GAAP allows different methods of accounting for inventory, and equipment. Each involves the use of assumptions and estimates. Each also can result in different amounts on the balance sheet and income statement, which would effect the CWB’s reported profitability, liquidity, and solvency.

Below, I first explain the choice of inventory cost flow methods including an evaluation of the possible alternatives, the effect on net income and total asset of each possible alternative, and the effect on the relevant common financial statement ratios of profitability, liquidity, and solvency. Given this information, I justify why I selected the [XXX – you fill in] method for CWB.

[Here is where you should discuss possible alternatives and select a cost flow method for accounting for the racing bike inventory.]

[Here is where you should present an analysis of the alternatives.]

[Here is where you should show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.]

[Here is where you should present the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.]

[Here is where you should explain why you select the alternative that you use in the financial statements. ]

Next, I explain the accounting for equipment including determining the purchase price and the depreciation method. I also evaluate of the possible alternatives for depreciation the equipment, the effect on net income and total asset of each possible alternative, and the effect on the relevant common financial statement ratios of profitability, liquidity, and solvency. Given this information, I justify why I selected the [XXX – you fill in] method for CWB and useful lifes of [XXX – you fill in].

[Here is where you should discuss possible alternatives and select a depreciation method.]

[Here is where you should present an analysis of the alternatives.]

[Here is where you should show and discuss financial statements effects of the alternative methods and estimates such as change in net income, assets, or liabilities.]

[Here is where you should present the effects of the alternatives on the relevant common financial statement ratios of profitability, liquidity, and solvency.]

[Here is where you should explain why you select the alternative that you use in the financial statements. ]