Effects of LIFO and FIFO methods of inventory system on ending inventory.
Company A and Company B 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 A used the first-in, first-out method of pricing inventory, while Company B 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?
(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?