Question
Electronics, Inc., is a high-volume, wholesale merchandising company. Most of its inventory turns over four or five times a year. The company has had 50
Electronics, Inc., is a high-volume, wholesale merchandising company. Most of its inventory turns over four or five times a year. The company has had 50 units of a particular brand of computers on hand for over a year. These computers have not sold and probably will not sell unless they are discounted 60 to 70%. The accountant is carrying them on the books at cost and intends to recognize the loss when they are sold. This way, she can avoid a significant write-down in inventory on the current years financial statements. Question 1: Is the accountant correct in her treatment of the inventory? Why or why not? Question 2: Explain what is meant by conservatism and how it ties in with the lower-of-cost-or-market method of accounting for inventory. Question 3: What are some reasons why the inventories of electronic equipment might have to be written down.
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