The LIFO Company and the FIFO Company both manufacture paper and cardboard products. Prices of timber, paper pulp, and finished paper products have generally increased by about 5 percent per year through the start of this year. Inventory data for the beginning and end of the year are shown below.

a Assuming that the prices for timber, paper pulp, and finished paper had remained unchanged during the year, how would the two companies' respective inventory valuation methods affect the interpretation of their financial statements for the year?
b How would the answer to part a differ if prices at the end of the year had been lower than at the beginning of the year?
c How would the answer to part a differ if prices at the end of the year had been higher than at the beginning of the year?

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LIFO Company Inventory (last in, first out) FIFO Company Inventory (first in, first out, lower of cost or market) January 1 December 31 $19,695,000 46,284,000 $15,870,000 38,250,000 Income statements for the two companies for the year ending December 31 are as follows: LIFO Company FIFO Company Sales... Expenses: Cost of Goods Sold Depreciation... General Expenses Income Taxes (40 percent of pretax income) Total Expenses Net Income $57,000,000 $129,000,000 $44,580,000 $108,000,000 5,400,000 12,000,000 2,220,000 1,920,000 $54,120,000 $ 2,880,000 5,400,000 1,440,000 $126,840,000 $ 2,160,000