To begin, read the following scenario: Company 1 and Company 2 are online retail

Question

To begin, read the following scenario: Company 1 and Company 2 are online retailers. Both companies are basically identical and follow the same accounting practices except that Company A uses LIFO and Company B uses FIFO to value their inventory. Because of rising inventory costs, both companies need additional capital to manage their operations. For your main discussion post, reflect on these questions: If Company A and Company B apply for a loan at their local bank and the bank bases its decision on net income, which company is more likely to obtain the loan? Explain. What if the bank based its decision on cash flows associated with the inventory costing valuation method the company uses? Which company might be better positioned to obtain the loan? Elaborate your responses and provide an example as needed to support your assessment. For your responses, focus on the following questions: Do you agree with your classmates’ responses as far as which company might obtain the loan if the bank bases its decision on net income and/or cash flows? Why or why not? How has the discussion impacted your understanding of the effects of FIFO and LIFO inventory methods on net income and cash flows? Support your responses to classmates with additional research and/or examples of your understanding of these inventory valuation methods. Be sure to post at least 2 references in support of your explanations and conclusions.

Explanation / Answer

as per LIFO method last units sold out first and we assume that closing invetnory consist of units ealrier bought , therefore in the rising cost trend as per LIFO we value inventory at lower levels because we are assuming hat last in units have been sold and stock consist of ealrier bought units . as per FIFO method we consider units sold are first from fiorst bought , and closing invetory consist of later bought units , therefore wse value inventory at higher price in price increasing trend . A uses LIFO method and B uses FIFO method . So B 's net income would be higher and they wuld be in good position to obtain loan from bank

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