An electronics store has a large number of computers in its inventory that use outdated technology. These computers are reported at their cost. Shortly after the December 31 year-end, the store manager insists that the computers can be sold for well over their cost. But the store’s accountant has been told by the sales staff that it will be difficult to sell these computers for more than half of their inventory cost.
Required:
1. Why is the store manager reluctant to admit that these computers have little sales value?
2. What are the consequences for the business of failing to recognize the decline in value?
3. What are the consequences for the accountant of participating in a misrepresentation of the inventory’s value?