Reference no: EM131632829

Question - ABC Company uses the LIFO method of inventory costing. This year, the profit of ABC Company is unusually high. The president is expecting the corporate tax rate to decrease significantly next year. The president, John Brown, would like to show a lower profit this year in order to take advantage of the lower corporate tax rate next year. Mr. Brown advises the accountant and purchasing department to make a large inventory purchase a couple of days before year end. The cost of inventory has risen drastically at year-end and will represent a significant amount of ending inventory. What is the impact of this transaction on this year's and next year's income statement and income tax expense? If ABC had been using FIFO, would the president have asked for the same actions? If you were the accountant, what would you do?