Comparison of LIFO and FIFO

question 8

Essay

Comparison of LIFO and FIFO
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 ______________________________

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Definitions:

Overvalued Currency

A currency whose value is higher than its actual demand or economic fundamentals justify.

Non-Performing Loan

A loan in which the borrower is in default and has not made scheduled payments of principal or interest for a certain period, typically 90 days.

FX Swaps

The simultaneous purchase and sale of a given amount of currency at two different rates.

Currency Fluctuations

Variations in the exchange rate of one currency relative to another, affecting international trade and investment.