Yokohama Company is a wholesaler of musical instruments. Yokohama has used the LIFO inventory method for more than 40 years. Near the end of 20X8, before computing cost of goods sold, the company’s inventory of a particular instrument listed three LIFO layers, two of which were from earlier years and one from 20X8 purchases:

In 20X8, Yokohama sold 32,000 units, leaving 4,500 units in inventory.
On December 27, 20X8, Yokohama had a chance to buy a minimum of 15,000 units of the instrument at a unit cost of $70. The offer was good for 10 days, and delivery would be immediate on placing the order.
Helen Tagnetta, chief purchasing manager of Yokohama, was trying to decide whether to make the purchase and, if it is made, whether to make it in 20X8 or 20X9. The controller had told her that she should buy immediately because the company would save almost $80,000 in taxes.
The combined federal and state income tax rate is 45%.
1. Explain why nearly $80,000 of taxes would be saved.
2. Are there any ethical considerations that would influence this decision?Explain.

  • CreatedFebruary 20, 2015
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