Reference no: EM132735077

The president of Ace Retail commented on the company's new controller:

"The woman is brilliant! She has shown us how we can maximize our income and at the same time minimize the amount of taxes we have to pay the government. Because the cost to purchase our inventory constantly goes up, we will use FIFO to calculate cost of goods sold on the income statement to minimize the amount charged to cost of goods sold and thus maximize net income. For tax purposes, however, we will use LIFO because this will minimize taxable income and thus minimize the amount we have to pay in taxes."

Problem 1: Should the president be enthralled with the new controller? Explain your answer.

Problem 2: What does the term LIFO liquidation mean? How can it lead to poor buying habits?

Problem 3: Is it acceptable for a company to disclose in its annual report that it is switching from some other inventory costing method to LIFO to save on taxes? Explain.