Reference no: EM132498978

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.

Question (a) Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost?

Question (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?

Question (c) Which company is minimizing income taxes it must pay?

Question (d) Which company would have reported the higher net income if both companies had used the same method of pricing inventory?