Question - Explain underlying GAAP for inventory; evaluate management decisions... Select three of the scenarios below, determine whether each action of buying, selling, and accounting for inventories is ethical or unethical. State your reasoning for each of your answers.
In applying the lower-of-cost-or-market rule to inventories, Tundra Financial Industries recorded an excessively low value for its ending inventory (below both cost and market). This allowed the company to pay less income tax for the year.
Mercy Pharmaceuticals purchased a large amount of inventory shortly before year-end to increase the LIFO cost of goods sold and decrease reported income for the year.
Marsten, Inc., delayed the purchase of inventory until after December 31, 2012, to keep 2012's cost of goods sold from growing too large. The delay in purchasing inventory helped net income of 2012 to reach the level of profit demanded by the company's investors.
Dopler Sales Company deliberately overstated ending inventory in order to report higher profits (net income).
Blake Corporation deliberately overstated purchases to produce a high figure for cost of goods sold (low amount of net income). The real reason was to decrease the company's income tax payments to the government.