Two similar companies use different inventory valuation methods. In fact, the companies are identical except for their inventory methods. L Co.uses the LIFO inventory valuation method, and F Co. uses FIFO.

Income Statements L Co. F Co.

Sales $ 30,000 $30,000 Cost of goods sold (21,280) (19,200)

Gross profit 8,720 10,800 Selling, general, and administrative (6,000) (6,000)

Income before interest expense 2,720 4,800 Interest expense (12%) (960) (960)

Income before taxes $ 1,760 $ 3,840 Balance Sheets Assets Cash $ 4,000 $ 4,000 Accounts receivable 5,000 5,000 Inventory 2,720 4,800 Total current assets 11,720 13,800 Fixed assets (net) 30,000 30,000 Total assets $ 41,720 $43,800 Equities Current liabilities $ 3,200 $ 3,200 Long-term liabilities 8,000 8,000 Total liabilities 11,200 11,200 Shareholders’ equity 30,520 32,600 Total equities $ 41,720 $43,800