Interpretation of GAAP and Ethical Issues
Response to the following problem:
Robin Smith is considering buying shares in the Mah Company. The company has reported an increase in net income this year. On careful reading of the notes to the financial statements, Robin learns that the company had a LIFO liquidation this year. Robin understands what caused the liquidation but has asked you for advice about how to interpret it.
Required
1. Prepare a short memo to Robin to answer the question.
2. Could a LIFO liquidation profit create ethical issues?