Notes to the financial statements of two well-known clothing manufacturers follow:
J.P.Stevens & Co.,Inc.
Inventories: The inventories are stated at the lower of cost, determined principally by the LIFO method, or market.
Bobbic Brooks,Incorporated
Inventories: Inventories are stated at the lower of cost (first in, first-out method) or market value, assuming a period of rising prices.
a. Which company is using the more conservative method of pricing its inventories? Explain.
b. Based on the inventory methods in use in their financial statements, which company is in the better position to minimize the amount of income taxes that it must pay? Explain.
c. Could either company increase its cash collections from customers or reduce its cash payments to suppliers of merchandise by switching from FIFO to LIFO, or from LIFO to FIFO? Explain.
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