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For this week’s discussion, prepare 4â€“5 paragraphs discussing inventory valuations. Consider the following to include in your discussion:
If prices were steadyâ€”no inflation and no deflationâ€”would net income be different depending on whether a company used FIFO or LIFO? Explain.
If you were the owner of a company, and thus responsible for the payment of income taxes, which inventory method would you prefer if you were operating in an inflationary environment? Explain, using an example.
If you were the manager of a division of a company, operating in an inflationary environment, and your bonus depended on net income, which inventory method would you prefer? In answering this question, assume that you are concerned only about receiving a high bonus; you are not concerned about the well-being of the company. Explain, using an example.
The use of LIFO has been described as sacrificing the balance sheet in order to achieve an income statement in which gross profit is determined by matching the current costs of replacing inventory against the current selling prices of the inventory. What is meant by that description?
How can you find out what inventory cost flow method is being used by a company?