You are making a detailed analysis of the financial statements and accounting records of two companies in the same industry, Adams Company and Bar Com¬

pany. Price levels have been rising steadily for several years. In the course of your investigation, you observe that the inventory value shown on the Adams Com¬

pany balance sheet is quite close to the current replacement cost of the merchan¬

dise on hand. However, for Bar Company, the carrying value of the inventory is far below current replacement cost. What method of inventory valuation is prob¬

ably used by Adams Company? By Bar Company? If we assume that the two companies are identical except for the inventory valuation method used, which company has probably been reporting higher net income in recent years?

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