Q 3. After analyzing financial statements of two companies of same industry: Shafer company and Margo...

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Q 3. After analyzing financial statements of two companies of same industry: Shafer company and Margo company. Both are paying income taxes on their earnings, both have large inventories and replacement cost of their product that are on the rise, over the years. A note to financial statements disclosed that Shafer company is cost is shown far below to its replacement cost and Margo inventory is shown at a cost close its current replacement cost. Required: Answer the following questions and explain the reasoning behind your answer. a. What method of inventory valuation is probably used by Shafer and Margo? b. Which company probably has been reporting the higher net income, support with figures? c. If both companies sold their entire inventory at the same sales price, which company would you expect to report the larger amount of gross profit, support with figures proving facts? Q 3. After analyzing financial statements of two companies of same industry: Shafer company and Margo company. Both are paying income taxes on their earnings, both have large inventories and replacement cost of their product that are on the rise, over the years. A note to financial statements disclosed that Shafer company is cost is shown far below to its replacement cost and Margo inventory is shown at a cost close its current replacement cost. Required: Answer the following questions and explain the reasoning behind your answer. a. What method of inventory valuation is probably used by Shafer and Margo? b. Which company probably has been reporting the higher net income, support with figures? c. If both companies sold their entire inventory at the same sales price, which company would you expect to report the larger amount of gross profit, support with figures proving facts?

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a Method of Inventory Valuation probably used by Shafe... View the full answer