Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Mike Wilkens tells the plant accountant to take the unusual step of recommending to the...

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Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income, company president Mike Wilkens 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.

Instructions

Answer the following questions.

(a)

Identify the major stakeholders. If the plant accountant recommends the purchase, what are the consequences?

(b)

If Wilkens Company were using the FIFO method of inventory costing, would Mike Wilkens give the same order? Why or why not?

Answered Same DayMar 18, 2021

Answer To: Wilkens Company uses the LIFO method for inventory costing. In an effort to lower net income,...

Sarabjeet answered on Mar 19 2021
151 Votes
Part A
The main stakeholders are investors, creditors, Gamble Company's management (including the president and factory customers), and other employees. Purchasing inventory in this case reduces net income and therefore reduces the company's taxable amount. For stakeholders and company management, this decision will benefit. The purchasing department may worry about the complexity of the inventory. With regard to these compilations, factory accountants can follow the president's recommendations without violating GAAP.
Government: Because it affects profits, so is the tax payable to the government.
Employees: As a result of changes in reported profits and current...
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