Question
General Motors and Ford use the last-in, first-out (LIFO) method to value their inventories. Honda (of Japan) and Daimler-Benz (manufacturer of Mercedes-Benz of Germany) use
General Motors and Ford use the last-in, first-out (LIFO) method to value their inventories. Honda (of Japan) and Daimler-Benz (manufacturer of Mercedes-Benz of Germany) use the firstin, first-out (FIFO) method. Under LIFO, recent costs are expensed as cost of goods sold; under FIFO, older costs are expensed as cost of goods sold. Required: Given the income statement effects of LIFO versus FIFO, how will the balance sheet inventory amounts differ between General Motors and Ford versus Honda and DaimlerBenz? In other words, will inventory be reported amounts representing recent costs or older historical costs? In your opinion, which balance sheet amounts would be more useful to financial statement users in making decisions to buy or sell shares of a companys stock?
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