Taylor Company, a household appliances dealer, purchases its inventories from various suppliers. Taylor has consistently stated its inventories at the lower of cost (FIFO) or market and uses the gross price method to record purchase discounts. Required: Taylor is considering alternate methods of accounting for the purchase discounts it takes when paying its suppliers promptly. From a theoretical standpoint, discuss the acceptability of each of the following methods: income when payments are made

reduction of cost of goods sold for period when payments are made

direct reduction of purchase cost

Identify the effects on both the balance sheet and the income statement of a company using the LIFO inventory method instead of the FIFO method over a substantial time period when purchase prices of household appliances are rising. State why these effects take place.