Gamble Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Oscar Gamble tells the plant accountant to take the unusual step of recommending to the purchasing department a large purchase of inventory at year-end. The price of the item to be purchased has nearly doubled during the year, and the item represents a major portion of inventory value.
Answer the following questions.
(a) Identify the major stakeholders. If the plant accountant recommends the purchase, what are the consequences?
(b) If Gamble Company were using the FIFO method of inventory costing, would Oscar Gamble give the same order? Why or why not?
In this case, the company president wants to make the large purchase in order to lower net income. The lower net income is, the less that Gamble will pay in federal tax liability.
(a) Identify the major stakeholders.
The major stakeholders would include creditors, investors, the company's employees, and even those who read the company's financial statements in an attempt to base rational, educated investing decisions on the information presented.
While there is nothing inherently wrong with making an inventory purchase near year-end, in this case, the ...
This solution answers both of the questions presented in the Gamble Company inventory case.