Question
In: Accounting
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager...
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager purchased a substantial quantity of inventory earlier this year…inventory whose customer desirability has waned to some extent. As such, the inventory value has declined below its cost and two methods of handling the write-down are being discussed: showing the amount of the write-down ($3,000,000) as a line item loss on the income statement and showing the loss as part of cost of goods sold. Both methods are GAAP. a. What is the ethical accounting issue in this situation? (1 pt.) b. Considering the qualitative characteristics of accounting as well as basic accounting concepts, discuss pros and cons of using (1) the loss method and (2) the CGS method. (3 pts.) c. What other information might be useful in making the decision as to how the loss will be recognized on the income statement? (2 pts.) d. What method would you choose and why? (1 pt.)
Solutions
ekkarill92 answered 1 year agoRelated Solutions
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager...
L Co. has not been very profitable for the past three years.
Additionally, a recently-ousted manager purchased a substantial
quantity of inventory earlier this year…inventory whose customer
desirability has waned to some extent. As such, the inventory value
has declined below its cost and two methods of handling the
write-down are being discussed: showing the amount of the
write-down ($3,000,000) as a line item loss on the income statement
and showing the loss as part of cost of goods sold....
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager...
L Co. has not been very profitable for the past three years.
Additionally, a recently-ousted manager purchased a substantial
quantity of inventory earlier this year…inventory whose customer
desirability has waned to some extent. As such, the inventory value
has declined below its cost and two methods of handling the
write-down are being discussed: showing the amount of the
write-down ($3,000,000) as a line item loss on the income statement
and showing the loss as part of cost of goods sold....
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager...
L Co. has not been very profitable for the past three years.
Additionally, a recently-ousted manager purchased a substantial
quantity of inventory earlier this year…inventory whose customer
desirability has waned to some extent. As such, the inventory value
has declined below its cost and two methods of handling the
write-down are being discussed: showing the amount of the
write-down ($3,000,000) as a line item loss on the income statement
and showing the loss as part of cost of goods sold....
L Co. has not been very profitable for the past three years. Additionally, a recently-ousted manager...
L Co. has not been very profitable for the past three years.
Additionally, a recently-ousted manager purchased a substantial
quantity of inventory earlier this year…inventory whose customer
desirability has waned to some extent. As such, the inventory value
has declined below its cost and two methods of handling the
write-down are being discussed: showing the amount of the
write-down ($3,000,000) as a line item loss on the income statement
and showing the loss as part of cost of goods sold....
Our company has been a very profitable company for many years. Currently, they are considering investing...
Our company has been a very profitable company for many years.
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Ross Company has been in business for several years, during which time it has been profitable....
Ross Company has been in business for several years, during
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Expenses
2012
$182,000
$150,000
2013
220,000
170,000
2014
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180,000
2015
241,000
196,000
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who has taken a sick leave at short notice.
The company's audit for the financial year ended 30 June 20Y0 is
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million.
You are in the midst of...
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