methods of valuing inventory

methods of valuing inventory
Companies are currently allowed to choose between several different methods of valuing inventory, such as FIFO, LIFO, specific identification, and average cost. (International Financial Reporting Standards prohibit LIFO). Do you think all companies should be required to use the same method of accounting for inventory? If so, which one should it be?
9: In 2002, WorldCom filed for bankruptcy shortly after the company announced an internal investigation which revealed $11 billion of fraudulent accounting entries. One of the things the company did was booking ‘line costs’ (interconnection expenses with other telecommunication companies) as capital on the balance sheet instead of expenses. Bernard Ebbers was Chief Executive Office at the time.

How did booking “line costs” as capital distort the financial statements?

Who do you think is most at fault for the conditions leading up to the company’s bankruptcy and who suffered the most as a result?

Where is Bernard Ebbers now?

Two close family friends, Ken and Cindy, started a business three years ago out of their kitchen making natural soaps and selling them to boutique businesses in resort areas. The business has doubled in the past two years and they are considering taking out a $50,000 home equity loan to expand their business and buy some additional equipment. They have asked your opinion about this financial transaction. What advice would you give them?

Your 55 year old parents have been saving for retirement many years and have built up a nest egg of $1,000,000 in cash and equity investments. They are considering retiring in about 10 years and are wondering whether to invest some or all of their retirement savings in the bond market because they feel it is less risky than the stock market. Bond interest rates currently are at historical lows and are expected by some financial analysts to rise in the next decade. What would you suggest they do? Is your suggestion impacted at all by analysts expectation about future interest rates?

 

 

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