In 2010 the moncrief company purchased from jim lester the

Assignment Help Accounting Basics

Reference no: EM13485119

In 2010 the Moncrief Company purchased from Jim Lester the right to be the sole distributor in the western states of a product called Zelenex. In payment, Moncrief agreed to pay Lester 20% of the gross profit recognized from the sale of Zelenex in 2011.

If Moncrief purchases the additional units at year end under a periodic LIFO inventory system, Moncrief reduces Jim Lester's payment by $40,000 ($210,000 - $170,000) and decreases gross profit by $200,000 ($1,050,000 - $850,000). The net effect on before-tax income is a decrease of $160,000 ($200,000 - $40,000). Since Moncrief does not intend to sell the units until 2004, the only logical reason for purchasing more costly inventory at year-end is profit manipulation.

Should Moncrief exercise its right to purchase inventory at will, resulting in a reduction in net income, or recognize the rights of Jim Lester to receive profit for the sale of his product, shareholders' rights to have their investment appreciate through positive earnings, and government entities' rights to collect tax on economic net income? Why?

Reference no: EM13485119

Questions Cloud

Samuelson and messenger sampm began 2013 with 220 units of : samuelson and messenger sampm began 2013 with 220 units of its one product. these units were purchased near the end of

Define and discuss the function of collateral in short-term : define and discuss the function of collateral in short-term credit

On january 2 2011 jansing corporation acquired a new : on january 2 2011 jansing corporation acquired a new machine with an estimated useful life of five years. the cost of

A company is planning a 35 million dollar marketing : a company is planning a 35 million dollar marketing campaigntv add. explain from what source would they get the money

In 2010 the moncrief company purchased from jim lester the : in 2010 the moncrief company purchased from jim lester the right to be the sole distributor in the western states of a

Compare the potential for agency problems in sole : compare the potential for agency problems in sole proprietorships partnerships and corporations. in light of your

Salter mining company purchased the northern tier mine for : salter mining company purchased the northern tier mine for 58000000 cash. the mine was estimated to contain 1120000

Biefly describe the current international monetary system : briefly describe the current international monetary system. what are the different types of exchange rate

Paramount trading co sells watches to retailers with the : paramount trading co. sells watches to retailers with the right of return. based on past experience paramount estimates

User Account

All Pages