S6-14

(Learning Objectives 3, 5: Explain underlying GAAP for inventory; evaluate management decisions) Determine whether each of the following actions in buying, selling, and accounting for inventories is ethical or unethical. Give your reason for each answer.

1. In applying the lower-of-cost-or-market rule to inventories, Tundra Financial Industries recorded an excessively low value for its ending inventory (below both cost and market). This allowed the company to pay less income tax for the year.

2. Mercy Pharmaceuticals purchased a large amount of inventory shortly before year-end to increase the LIFO cost of goods sold and decrease reported income for the year.

3. Marsten, Inc., delayed the purchase of inventory until after December 31, 2012, to keep 2012