Crocs gets props Twitter users praised Crocs when it announced its Free Pair for Healthcare program to donate free shoes to any healthcare worker who requested a pair. In just one week, from the announcement date on March 25 to its quarter-end on March 31, 2020, Crocs had given away $1.7 million of inventory." In the following quarter, Crocs reported giving away $8.2 million more shoes, after it expanded its donation programs to include delivery drivers and line cooks. In total, when these programs ended May 29, 2020, Crocs had given away $9.9 million worth of shoes. Crocs, Incorporated Income Statements For the three months ended June 30 (in millions) 2020 Sales revenue S 331.5 Cost of goods sold 151.6 Gross profit 179.9 Selling, general, and administrative expenses 123.3 Income from operations 56.6 Other expense (income) 1.9 Income before income taxes 54.7 Income tax expense (benefit) (1.9) Net income $ 56.6 2019 S 358.9 169.5 189.4 141.5 47.9 3.2 44.7 5.5 S 39.2 Where are inventory donations such as these reported in companies' financial statements? Are they included in Cost of Goods Sold? That's where Crocs reports other inventory-related expenses such as write-downs and the costs to design, produce, procure, and ship its footwear. Or, are they reported as a cost of promoting the company's business, similar to advertising expenses? Publicly-traded companies rarely mention where their donations are reported, because either the amounts are too small to justify separate reporting or the companies don't want to risk being blamed for over-producing in a world increasingly concerned about environmental sustainability. Whatever the reason, donations are almost never called-out in financial statements, even when they benefit others. For example, Ralph Lauren Corporation's 10-Q said nothing about the company's donation of 1.5 million apparel products to support front line workers and families in May 2020.2 Likewise, Guess?, Incorporated did not discuss its donation of 45,000 clothing items during the pandemic, nor did The Gap mention its $60 million donation of unsold apparel, which was somewhat overshadowed by the company's $235 million inventory write-down.3 Crocs is the rare exception. Although its income statement (shown above) does not separately identify its inventory donation, the notes to the financial statements for the quarter ended June 30, 2020, report that $8.2 million was included in Selling, General, and Administrative Expenses. The company's inventory donations in the previous year were not material," so we can't say whether Crocs' choice of classification in 2020 was normal or (dare we say it?) unprecedented. 1All amounts and percentages in this reading pertaining to Crocs are based on data reported by Crocs, Incorporated, In Its Form 10-Q for the period ended June 30, 2020, downloaded from sec.gov on October 10, 2020. 2FN Staff. *Charlty works: Michael Kors donates $35M in products to Dellvering Good + more." Footwear News, June 12, 2020, downloaded October 12, 2020, from https:/footwearnews.com/2020/focus/philanthropy/fashion-Industry-charty-donation-news-may-2020-1202978016/. 3Dalton, Matthew. What happens to all of the unsold clothes?" Wall Street Journal, August 12, 2020, downloaded October 12, 2020, from https://www.wsj.com/articles/fashions-big- question-what-to-do-with-all-those-unsold-clothes-11597328695. Which of the following items does Crocs include in its Cost of Goods Sold? (Check all that apply.) Check All That Apply Costs to design inventory that has been sold. Costs to produce inventory that has been sold. Costs to procure (.e., purchase) inventory that has been sold. Cost of inventory donated to others