Ethical issuing in accounting for inventory. Managers of firms experience pressure from securities markets to achieve earnings targets each year. Discuss ethical issues in each of the following independent actions that increase earnings for the year. Assume that the effect is material.

a. On December 10 of the current year. Firm A receives an advance of $50,000 from a hockey team for 20,000 custom-made shirts with the team's logo, which the team intends to distribute to fans entering a hockey game during the first week in January. Firm A completes the manufacturing of the shirts on December 30. intending to ship them on December 31 before its accounting period ends. Unfortunately, a snowstorm on Decem- ber 31 prevented their shipment. Firm A recorded this transaction as a sale for December, and reduced its inventory accordingly. It set the items aside in its shipping room on December 31 with a clear sign to its own personnel conducting a physical inventory on that date and to its auditors who were observing the count that the items were not to be counted as inventory.
Firm B uses large warehouses to store its finished goods ready for sale. After its person- nel and auditors conducted a physical inventory of goods on one side of its warehouses.
Firm B transported a portion of the inventory to another part of the warehouse, removing the inventory tags that indicated that the items had already been counted in inventory, and thereby included the items a second time in inventory. In this way, the firm overstated its ending inventory for the current year, understated its cost of goods sold, and overstated its earnings. This action resulted in an overstatement of the beginning inventory for the next year. Assuming a correct count of the ending inventory for the second year, the action has the result of overstating cost of goods sold for the second year and understating earnings.
Net income for the two years combined, however, is correctly stated, the net result of an overstatement in the first year offset by an equal understatement in the second year.
Firm C manufactures high quality sunglasses that carry the endorsements of several sports personalities. In an effort to achieve sales targets for the fourth quarter of the year, Firm C pressured its independent distributors to make unusually large orders of the sunglasses.
Low-priced imitations of these sunglasses hit the market soon thereafter, causing the distributors to accumulate large inventories. The distributors shipped these sunglasses back to Firm C. Firm C stored the returned sunglasses in a remote warehouse out of the view of its auditors and did not record them as returned goods.