Notes to the financial statements of two clothing manufacturers follow:
Inventories: The inventories are stated at the lower of cost, determined principally by the LIFO method, or market.
Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market value, assuming a period of rising prices.
a. Which company is using the more conservative method of pricing its inventories? Explain.
b. On the basis of the inventory methods in use in their financial statements, which company is in the better position to minimize the amount of income taxes that it must pay? Explain.
c. Could either company increase its cash collections from customers or reduce its cash payments to suppliers of merchandise by switching from FIFO to LIFO, or from LIFO to FIFO? Explain.