AICPA Adapted Taylor Company, a householdappliances dealer, purchases its inventories from varioussuppliers. Taylor has consistently stated its inventories at thelower of cost (FIFO) or market and uses the gross price method torecord purchase discounts.

Required:

Taylor is considering alternate methods of accounting for thepurchase discounts it takes when paying its suppliers promptly.From a theoretical standpoint, discuss the acceptability of each ofthe following methods:

income when payments are made

reduction of cost of goods sold for period when payments aremade

direct reduction of purchase cost

Identify the effects on both the balance sheet and the incomestatement of a company using the LIFO inventory method instead ofthe FIFO method over a substantial time period when purchase pricesof household appliances are rising. State why these effects takeplace.

Assume no changes in physical quantities during the period.During a period of rising purchase prices, will a FIFO or a LIFOcost-flow assumption result in the higher ending inventory balancesheet carrying value? The lower balance sheet carrying value? Whichcos-flow assumption will result in the higher cost of goods sold?Which will result in the lower cost of goods sold?

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During a period of time in which prices are rising, which of thetwo methods, FIFO or LIFO gives you the higher net income? Why? During a period of time in which prices are rising, which of thetwo methods, FIFO or LIFO, would you want to use to calculate yournet income for tax purposes? Why?

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During a period of time in which prices are rising, which of thetwo methods, FIFO or LIFO gives you the higher net income?

Why?

During a period of time in which prices are rising, which of thetwo methods, FIFO or LIFO, would you want to use to calculate yournet income for tax purposes?

Why?