Question
Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the
Company X and Company Y sell the same product. The cost of this product has been rising steadily throughout the year. Both companies reported the same net income for the year, although Company X used the first-in, first-out method of pricing inventory, while Company Y used the last-in, first-out method. (a) Which company's valuation of ending inventory in the balance sheet is more likely to approximate replacement cost? Company ______________________________ (b) Which company reports a cost of goods sold figure in the current year income statement that is more likely to reflect the replacement cost of the units sold? Company ______________________________ (c) Which company is minimizing income taxes it must pay? Company ______________________________ (d) Which company would have reported the higher net income if both companies had used the same method of pricing inventory? Company ______________________________
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