For the case of MPC this transaction of $1000 will be treated as expenses on the income statement. These expenses will serve to decrease the magnitude of EBIT (earnings before interest and tax) for the company. This amount of expense will be reported in the annual report of 2014 as payment is made on June 2014. The agreement is made in the year 2013 so the MPC has taken advantage of these services since 2013 but it seems that MPC is following accrual based accounting techniques. In the income statement of MPC for the year 2014 the expense of $1000 will serve to decrease the figure of EBIT which will provide an income tax benefit to the company. All the discussion illustrates that the payment of $1000 by MPC to Rugby World Cup organizers will serve to generate positive income tax consequences for MPC and negative income tax consequences for Rugby Organizers. However, the final outcome of that agreement goes beyond the monetary incentives as such agreements deals with the marketing and advertisement services which generate profits after a significant time lag (Murphy, 2005).
As Jack is the only service station proprietor in the area therefore; MPC is inclined to be engaged in a tied agreement with Jack to get a sole supplier of petroleum in the region. As this agreement is based on 20 years, therefore, it will generate additional revenues for the firm but over a longer period of time. The payment of $100,000 to the Jack will be recorded as earning on the income statement of Jack as it is made at the commencement of agreement by MPC. This will serve to increase the profitability of Jack for that particular period hence it will be subject to income tax consideration. Jack will have to pay additional amount as income tax because this monetary deal will generate additional revenues for Jack. So the final outcome will be positive for Jack as it is sure that the monetary benefit (100,000) will increase the amount paid as tax by Jack as it will be lesser than $100,000.