Emil Hinkel Owns and Operates a Large Antique Shop

question 135

Essay

Emil Hinkel owns and operates a large antique shop.He uses the specific identification method to account for transactions that affect inventory.Hinkel recently completed a physical inventory of the merchandise in his shop as part of his year-end work.Today,his accountant called to inform him that it would be necessary to adjust the inventory figure shown on the balance sheet,which will increase Hinkel's tax liability.Hinkel argued that the inventory had to be correct,because he counted it twice and matched every item to an invoice.Cite reasons why the accountant would find it necessary to adjust the inventory even if Hinkel's count is accurate.

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Definitions:

Expected Rate of Return

The expected rate of return is the anticipated percentage gain or loss that an investment is projected to generate, based on historical or estimated future performance.

Interest Rate

The percentage at which interest is paid by a borrower for the use of money they borrow from a lender, typically expressed as an annual percentage rate.

Research and Development

The investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.

Expected-Rate-of-Return Curve

A graphical representation that illustrates the relationship between the expected return of an investment and its associated risk.