1 . Jeanette Corporation has borrowed money during the current month and has Entered in a debt contract . The covenants of this contract require Jeanette* Corporation to achieve a certain amount of net income and maintain a certain amount of working capital . The Board of Directors of Jeanette is contemplating a proposal to reward the top Management of Jeanette Corporation with an incentive bonus that is based on accounting net income . 3 . The vice president of finance suggests using the LIFO method for tax purposes and the FIFO method for financial reporting purposes . With lower taxable* income , Jeanette Corporation can save on the current tax it pays , and at the same time , it can show higher income in the financial reports and " look good . " 4 . The controller cautions that while the LIFO method may reduce the current period tax liability , " it could hit us hard when things are not going so well . " This potential problem with the LIFO method could be*" avoided if we use FIFO in the first place . " 5 . . However , the president would like to adopt the method that provides both a better application of the matching principle and a more current measure of inventory on the balance sheet . 5 . The controller suggests that Jeanette should adopt the FIFO method since higher accounting income means a higher stock price . REQUIRED . The president of Jeanette Corporation has asked you to write a report evaluating the pros and cons of each of the issues raised above . In answering this question , assume that Jeanette Corporation expects an upward trend in inventory prices