Part 1: Online Test Google Form Marks 15 Part 2: Candidates should swer all questions. Marka 25 Allocated Time: 2 hours and 15 minutes Q1) As discussed previously in this chapter, the valuation of inventory and the cost of goods sold is of critical importance to managers and to users of the company's financial statements. The two primary issues with regard to inventory valuation are existence and valuation In a well-known case of inventory fraud, the Securities and Exchange Commission (SEC) brought an enforcement action against an officer of MiniScribe Corporation related to his involvement in overstating inventory reported in the company's balance sheet. The overstatement of inventory resulted in an understatement of cost of goods sold and an overstatement of profits reported in the company's income statement (MiniScribe's net income was actually inflated by $22 million, or 244 percent). Prior to being acquired by Maxtor Corporation, MiniScribe manufactured computer disk drives and its stock was quoted on NASDAQ. The company had discovered a material shortfall in its inventory balance. Reporting this shortfall would have increased the cost of goods sold and reduced the company's net income significantly. So, MiniScribe concealed the shortfall from its independent auditors by taking a number of actions to inappropriately overstate its actual inventory balance. First, it recorded a fictitious transfer of nonexistent inventory from its headquarters to an overseas subsidiary. Second, it repackaged setup items and Day and Date: Monday January 18, 2021 Time: 8:15 am - 11:15 am obsolete inventory as if they were "good" inventory items. Third, it packed bricks into computer disk drive boxes and shipped them to its distributors (these shipments were still counted as inventory by Mim Serbe until the distributors sold the boxes) (5 Mark) Instructions (a) Who are the stakeholders in this situation (b) is the overstatement in inventory unethical or is it simply a good business practice by an officer of MiniScribe Corporation? (c) Other than the overstatement or inventory what kind of unethical practices did this company engage in Part 1: Online Test Google Form Marks 15 Part 2: Candidates should swer all questions. Marka 25 Allocated Time: 2 hours and 15 minutes Q1) As discussed previously in this chapter, the valuation of inventory and the cost of goods sold is of critical importance to managers and to users of the company's financial statements. The two primary issues with regard to inventory valuation are existence and valuation In a well-known case of inventory fraud, the Securities and Exchange Commission (SEC) brought an enforcement action against an officer of MiniScribe Corporation related to his involvement in overstating inventory reported in the company's balance sheet. The overstatement of inventory resulted in an understatement of cost of goods sold and an overstatement of profits reported in the company's income statement (MiniScribe's net income was actually inflated by $22 million, or 244 percent). Prior to being acquired by Maxtor Corporation, MiniScribe manufactured computer disk drives and its stock was quoted on NASDAQ. The company had discovered a material shortfall in its inventory balance. Reporting this shortfall would have increased the cost of goods sold and reduced the company's net income significantly. So, MiniScribe concealed the shortfall from its independent auditors by taking a number of actions to inappropriately overstate its actual inventory balance. First, it recorded a fictitious transfer of nonexistent inventory from its headquarters to an overseas subsidiary. Second, it repackaged setup items and Day and Date: Monday January 18, 2021 Time: 8:15 am - 11:15 am obsolete inventory as if they were "good" inventory items. Third, it packed bricks into computer disk drive boxes and shipped them to its distributors (these shipments were still counted as inventory by Mim Serbe until the distributors sold the boxes) (5 Mark) Instructions (a) Who are the stakeholders in this situation (b) is the overstatement in inventory unethical or is it simply a good business practice by an officer of MiniScribe Corporation? (c) Other than the overstatement or inventory what kind of unethical practices did this company engage in
