At the end of its first year of operations, a company calculated its ending merchandise inventory according to three different accounting methods, as follows: FIFO, $47,500; average-cost, $45,000; LIFO, $43,000. If the company used the average-cost method, its net income for the year would be $17,000.
1. Determine net income if the company used the FIFO method.
2. Determine net income if the company used the LIFO method.
3. Which method is more conservative?
4. Will the consistency convention be violated if the company chooses to use the LIFO method? Why or why not?
5. Does the full-disclosure convention require disclosure of the inventory method used in the financial statements?