S6-14. (Learning Objectives 2, 4: Considering ethical implications of inventory actions)

Determine whether each of the following actions in buying, selling, and accounting for inventories is ethical or unethical. Give your reason for each answer.

1. Wellness Pharmaceuticals purchased lots of inventory shortly before year-end to increase the LIFO cost of goods sold and decrease reported income for the year.

2. In applying the net realizable value to inventories, Rich Financial Industries recorded an excessively low market value for ending inventory. This allowed the company to pay less income tax for the year.

3. Geller 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.

4. Ditto Sales Company deliberately overstated ending inventory in order to report higher profits (net income).

5. Blueberry, Inc., delayed the purchase of inventory until after December 31, 20X6, to keep 20X6’s cost of goods sold from growing too large. The delay in purchasing inventory helped net income of 20X6 to reach the level of profit demanded by the company’s investors.