Lady, Inc., whose fiscal year ends on December 31, designs and sells fashions for young professional women. Margaret Lutz, president of the company, fears that the forecasted profitability goals for 2014 will not be reached. She is pleased when Lady, Inc., receives a large order on December 30, 2014, from The Executive Woman, a retail chain of upscale stores for businesswomen. Lutz immediately directs the controller to record the sale, which represents 13 percent of Lady’s annual sales. At the same time, she directs the inventory control department not to separate the goods for shipment until after January 1, 2015. Separated goods are not included in inventory because they have been sold.
On December 31, 2014, the company’s auditors arrive to observe the year-end taking of the physical inventory under the periodic inventory system. How will Lutz’s actions affect Lady’s profitability in 2014? How will they affect Lady’s profitability in 2015? Were Lutz’s actions ethical? Why or why not?

  • CreatedMarch 26, 2014
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