Company A uses the FIFO method to cost inventory and Company B uses the LIFO method. Thetwo companies are exactly alike except for the difference in inventory costing methods. Costs ofinventory items for both companies have been falling steadily in recent years and each companyhas increased its inventory each year. Ignore income tax effects.Required:Identify which company will report the higher amount for each of the following ratios. If it is notpossible to identify which will report the higher amount, explain why.1. Current ratio.2. Debt-to-assets ratio.3. Earnings per share.
Company A uses the FIFO method to cost inventory and Company B uses the LIFO method. Thetwo companies are exactly alike except for the difference in inventory costing methods. Costs ofinventory items for both companies have been falling steadily in recent years and each companyhas increased its inventory each year. Ignore income tax effects.Required:Identify which company will report the higher amount for each of the following ratios. If it is notpossible to identify which will report the higher amount, explain why.1. Current ratio.2. Debt-to-assets ratio.3. Earnings per share.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Company A uses the FIFO method to cost inventory and Company B uses the LIFO method. The
two companies are exactly alike except for the difference in inventory costing methods. Costs of
inventory items for both companies have been falling steadily in recent years and each company
has increased its inventory each year. Ignore income tax effects.
Required:
Identify which company will report the higher amount for each of the following ratios. If it is not
possible to identify which will report the higher amount, explain why.
1.
2. Debt-to-assets ratio.
3. Earnings per share.
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