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(Lower-of-Cost-or-Market) The market value of Lake Corporation's inventory has declined below its cost. Vickie Maher, the controller, wants to use the allowance method to write down inventory because it more clearly discloses the decline in market value and does not distort the cost of goods sold. Her supervisor, financial vice-president Doug Brucki, prefers the direct method to write down inventory because it does not call attention to the decline in market value.

1. What, if any, is the ethical issue involved?
2. Is any stakeholder harmed if Brucki's preference is used?
3. What should Vickie Maher do?

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This assignment discusses the lower of cost or market for Lake Corporation's inventory.

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What, if any, is the ethical issue involved?
The market value of inventory for the corporation has been declined. The accounting principle for valuing the inventory is either cost or market price, whichever is lower. In this case the inventory has to be valued at the market price. If it is not shown in the market value it violated the accounting principle and the financial statements will not show the true view of the state of position of the ...

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