Chapter 6, Problem 6.7BYP

(a)

To determine

Ethical Issue: In the given situation, the profit of the company is high due to which amount of corporate tax is also high. In order to reduce the net income, the owner advised purchase department to purchase a large amount of goods just before 3 days the end of the year which result as double amount of purchase for the year and increased amount of ending inventory.

To explain: The effect of transaction on the income statement and income tax expense of current year and next year and reason behind that

(b)

To determine

To explain: The same advice will be applicable or not in case of FIFO method,

(c)

To determine

To explain: The ethical issue in the given situation.