Jim’s Music Company uses LIFO for inventory, and the company’s profits are quite high this year. The cost of the inventory has been steadily rising all year, and Jim is worried about his taxes. His accountant has suggested that the company make a large purchase of inventory to be received during the last week in December. The accountant has explained to Jim that this would reduce his income significantly.

1. Jim does not understand the logic of the accountant’s suggestion. Explain how the purchase would affect taxable income.

2. Is this ethical? Jim is uncertain about the appropriateness of this action from a legal and an ethical standpoint.