140.Comparison of LIFO and FIFOBoth Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same net income...

140.Comparison of LIFO and FIFO


Both Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same net income for the year, although Company X used the first-in, first-out method of pricing inventory, while Company Y used the last-in, first-out method.


(a) Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost?
Company ______________________________
(b) Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold?
Company ______________________________
(c) Which company is minimizing income taxes it must pay?
Company ______________________________
(d) Which company would have reported the higher net income if both companies had used the same method of pricing inventory?
Company ______________________________

141.Inventory flow assumptions


Briefly discuss the factors management should consider in deciding:


(a) Whether to use specific identification or a cost flow assumption in measuring the cost of goods sold.
(b) Whether to use FIFO or LIFO. (Assume a long-run trend of slowly rising prices.)