Reference no: EM132674775

Cheap-as-Chips stocks thousands of items in inventory that range in value from $1 to $100. The inventory on hand represents a material portion of current assets. The merchandise items change according to the season and the promotional theme adopted by the stores' management for the year. Merchandise is ordered up to four months in advance from Chinese and Korean suppliers. These special orders require Cheap-as-Chips to give the suppliers substantial deposits upon placement of the orders.

Problem 1: Which of the following statements accurately describe the inherent risks for Cheap-as-Chips?

Option 1: Material balance of inventory increases inherent risk

Option 2: Seasonal change of inventory items decreases inherent risk

Option 3: Overseas suppliers increase inherent risk

Option 4: Ordering merchandise four months in advance increases inherent risk

Option 5: Substantial deposits required by suppliers increases inherent risk

Option 6: Special orders decrease inherent risk