In the pro-forma income statements that James Colburn prepared for Rick Martino, the costs of the reel mower units and transportation were rising for 2007 and 2008. Discuss how the balance sheet and income statement would be affected if Merrimack changed from LIFO to FIFO and inventory purchase prices and transportation costs had been stable over the two-year period. What would happen to the income statement and balance sheet if Merrimack changed from LIFO to FIFO and inventory purchase prices and transportation costs had been falling over the two-yearperiod? Give an example of an industry where inventory prices might fall over time.

Answer rating: 100% (QA)

LIFO is not a good indicator of valuing inventory because the leftover inventory might be extremely old perhaps obsolete which results in a valuation ... View the full answer