Question

Ace Electronics is a company that sells computers, televisions, home entertainment centers, DVD players, and other electronic equipment. A downturn in the market has caused severe financial problems in the company. In order to fool the auditors as they begin their inventory count, several of Ace's managers have begun stacking empty boxes in the warehouse to create the illusion of extra inventory. This scheme is known as:

a. Forced reconciliation
b. Physical padding
c. Inventory shuffling
d. Misappropriation of intangible assets

Answer 1

The dishonest act of stacking empty boxes to inflate inventory is known as physical padding, which is an unethical accounting practice.

Step-by-step explanation:

The scheme adopted by Ace Electronics' managers in which empty boxes are stacked in the warehouse to create the illusion of extra inventory is known as physical padding. This unethical practice is designed to deceive auditors by artificially inflating the company's inventory figures, suggesting a healthier financial status than what truly exists. It is important for businesses to follow ethical accounting practices, and physical padding is a clear violation of such standards.