Accounting

M5D1: Let's Discuss: Impact to Cost of Goods Sold (See Case 6-1 Textbook) Ever since he was a kid, Carl Montague wanted to be a pro football player. When that didn’t work out, he found another way to channel his natural competitive spirit: He bought a small auto parts store in Kentucky that was deep in red ink (negative earnings). At the end of the year, he created “ghost” inventory by recording fake inventory purchases. He offset these transactions by “adjustments” to Cost of Goods Sold, thereby boosting profit and strengthening the balance sheet. Fortified with great financials, he got bank loans that allowed him to build up a regional chain of stores, buy a local sports franchise, and take on the lifestyle of a celebrity. When the economy in the region tanked, he could no longer cover his losses with new debt or equity infusions, and the whole empire fell like a house of cards.

For this week’s discussion, please respond to the questions listed below. In addition to your initial response, please be sure to respond to at least two other students’ initial responses, as well.

Required Responses:

Based on the facts provided, would the bank loan officer reviewing the application have sufficient information to detect fraud or falsified information? Assume the bank officer was unable to detect any foul play. What other stakeholders or related parties could be negatively impacted by the actions of Carl Montague? What kind of adjustment to Cost of Goods Sold (debit or credit) would have the effect of boosting earnings? This discussion will address the following Module Outcomes:

MO5-1: Analyze merchandising operations and the two types of inventory systems. (CO #1) MO5-2: Explain the method applied to adjust and close the accounts of a merchandising business. (CO #4, CO #5) Post your primary response. Be sure to review your writing for grammar and spelling before posting.

Read any postings already provided by your instructor and/or fellow students. See the SBT Discussion Rubric for information on how you will be evaluated on this activity.

Remember to read the feedback on your own major postings and reply to it throughout the module.

See the rubric for due dates for posts and responses.

Evaluation criteria

Review the SBT Discussion Rubric located in the "Start Here" section of the course for more information on grading criteria