Company First and Company Second are two companies with almost identical transactions that work in the same industry. However, there are some significant differences in how they record transactions. For instance:

Inventory: Company A records inventory using FIFO and Company B records inventory using LIFO.

Equipment: Company A depreciates equipment using the straight-line method while company B uses units of production. Both companies anticipate that they will use the equipment a lot in the early years and less in later years.

Research: Company A purchased a patent for $1,000,000. Company B developed a patent spending around $600,000. Company B anticipates that it could get $1,000,000 for the technology if it wanted to sell it.

Environmental liability: Both companies have been hit with a lawsuit by an organization that tries to protect the environment through litigation. Company A thinks it is possible they will lose. Company B thinks it is probable they will lose.

Accounts receivable: Company A thinks nearly all of their accounts receivable will be collected. Company B is concerned about the changes in economic conditions and layoffs and thinks that not all persons who owe them money will pay.

Investments: Both companies have purchased bond investments with their excess cash. Company A says it has the intent and ability to hold the investments until maturity and therefore classifies them as held to maturity. Company B has classified them as Available for sale. Since purchasing the bonds, they have decreased in value due to increases in the Feds interest rate.

Capitalization policy: For purchases of equipment Company A capitalizes all costs greater than $200. Company B believes this is too low of a threshold and instead capitalizes equipment costs greater than $2,000.

Required:

Compare all of the accounting choices of the two companies in terms of differences to assets, liabilities, stockholders equity, and net income.

Company A is greater / smaller / no difference compared to Company B

Item	Assets	Liabilities	Stockholders Equity	Net Income
a - inventory	Greater	Smaller	Greater	Greater
b - equipment	Greater	No difference	Greater	Smaller
c - research	Smaller	Greater	Smaller	Smaller
d - liability	No difference	Smaller	No difference	Greater
e - accounts receivable	Greater	Smaller	Greater	Greater
f - investments	Greater	Greater	Greater	Greater
g -capitalization policy	Greater	No difference	Smaller	Greater

Discuss reasons for and against allowing different application of GAAP and estimates when recording transactions.