Determine whether each of the actions below in buying, selling, and accounting for inventories is ethical or unethical. Give your reason for each answer.
1. Spartan knowingly overstated purchases to produce a high figure for cost of goods sold (and thus a low amount of net income). The real reason was to decrease the company’s income tax payments to the government.
2. In applying the lower-of-cost-and-net-realizable-value rule to inventories, Connor Industries recorded an excessively low realizable value for . This allowed the company to pay no income tax for the year.
3. In a period of decreasing prices, Sparrow Distributors purchased a lot of inventory shortly before year end to decrease the moving-weighted-average cost of goods sold and increase reported income for the year to reach the level of profit demanded by the company’s investors.
4. During a period of rising prices, Callais Electrical Products delayed the purchase of inventory until after December 31, 2017, in order to keep 2017’s moving-weighted- average cost of goods sold from growing too large. The delay in purchasing inventory helped net income of 2017 to reach the level of profit demanded by the company’s investors.
5. Lacombe Sales Company deliberately overstated in order to report higher profits (net income).
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