ACCT311
Unit3 - Discussion Board

Consider the following scenario:

Jim’s Music Company uses LIFO for inventory, and the company’s profits are quite high this year. The cost of inventory has been steadily rising all year, and Jim is worried about his taxes.

You are Jim's accountant and you suggested that the company make a large purchase of inventory to be received during the last week in December.

You explained to Jim that this would reduce his income significantly. Jim still doesn't understand the logic of your suggestion. Explain how the purchase would affect taxable income. (1 paragraph) Is this ethical? Jim is uncertain about the appropriateness of this from a legal and ethical perspective. Give your opinion and explain the ethical implications of making the purchase. (1 to 2 paragraphs)

I would tell Jim that if he was to make the large purchase close to the end of the year, it would leave his taxable income lower due to the unsold inventory.

There wouldn't be anything unethical about this transaction because it would all be recorded into the proper categories. I work for a large corporation and in my department; my manager tells me that we need to buy all we can during the last quarter. She tells me that this will help our projected budget for the upcoming year.

I feel that this is a similar situation. If Jim didn’t make the purchase, leaving his end of year net come high, the big boss can lower the budget for the next year for the inventory purchases. T

hey would feel the extra money isn’t needed for inventory because the high net income was achieved without the extra money. By purchasing the larger inventory purchase and reducing the net income, it shows that the company didn’t make the high profits that the company really did. But Jim should trust in my opinion because he hired me to be his accountant.

The reason I make the suggestion to Jim is because I feel that it will help out his business.