Paeth Wholesale Corp. uses the LIFO method of inventory costing. In the current year, profit at Paeth

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Paeth Wholesale Corp. uses the LIFO method of inventory costing. In the current year, profit at Paeth is running unusually high. The corporate tax rate is also high this year, but it is scheduled to decline significantly next year. In an effort to lower the current year's net income and to take advantage of the changing income tax rate, the president of Paeth Wholesale instructs the plant accountant to recommend to the purchasing department a large purchase of inventory for delivery 3 days before the end of the year. The price of the inventory to be purchased has doubled during the year, and the purchase will represent a major portion of the ending inventory value.

Instructions
(a) What is the effect of this transaction on this years and next year's income statement and income tax expense? Why?
(b) If Paeth Wholesale had been using the FIFO method of inventory costing, would the president give the same directive?
(c) Should the plant accountant order the inventory purchase to lower income? What are the ethical implications of this order?

Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula                Ending Inventory Formula =...
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Related Book For  book-img-for-question

Financial and managerial accounting

ISBN: 978-1118016114

1st edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

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