2. HEMI’s management is cost-conscious and does not spend money unless the benefits exceed the amount spent. The accountant understands that a physical inventory count is a good internal control practice; however, he wants you to explain the benefit of a physical inventory count when HEMI has a perpetual inventory system and the inventory is physically protected.
3. The accountant wants you to evaluate the following major transactions and provide adjusting journal entries, if necessary. For each item, explain why you are (or are not) adjusting HEMI’s current account balances and provide supporting calculations for adjustments:
a. On December 21, HEMI ordered 25 transmissions for a total cost of $15,000,000, which were shipped on December 27 with the terms FOB Destination. This inventory was not received at year-end and has not been recorded in HEMI’s accounting records.
b. There is a product in inventory that cost HEMI $11,000,000, which management has indicated will be sold close to its cost. Management is estimating the selling price to be $12,000,000, and HEMI will have to pay the transportation costs of approximately $2,000,000 on behalf of its customers.