Reliance Corporation, a leading manufacturer of analog and mixed signal products and high performance memory products, experienced a significant downturn in 2004, resulting in a substantial inventory write‐down of the memory products inventory. This case requires you to examine the issues of inventory valuation and disclosures and managerial motivations in managing earnings. A recovery of inventory values in the first quarter of 2005 provides a setting for evaluating subsequent financial statement reporting and for understanding the importance of ethics in financial reporting decisions. This case also provides you with an opportunity to research accounting literature, apply an accounting standard to a realistic setting, appreciate the judgments involved in financial reporting decisions, and understand difficulties in the evaluation of materiality.

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