2023 One or more paragraph Read the following scenario Company 1 and Company 2 are online retailers Both | Assignments Online
2023 One or more paragraph Read the following scenario Company 1 and Company 2 are online retailers Both | Assignments Online
Assignments Online 2023 Business Finance
One or more paragraph
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.
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
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