Company a Uses Lifo and Company B Uses Fifo for Inventory

question 59

Multiple Choice

Company A uses lifo and Company B uses fifo for inventory valuation.Otherwise, the firms are of similar size and have the same revenue and expense.Assume inflation.In analyzing liquidity and profitability of the two firms, which of the following will hold true?

• A) It is impossible to compare two firms with different inventory methods.
• B) Company B will have relatively higher profit and higher inventory turnover.
• C) Company B will have relatively higher profit and lower inventory turnover.
• D) Company A will have a higher current ratio and acid test ratio, with the same profit.
• E) Company B will have relatively higher profit and a higher current ratio.

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Definitions:

False Dilemma

A logical fallacy that presents two options as the only possible choices when in fact more options exist.

SWAT Team

A specialised unit within law enforcement agencies trained to handle high-risk operations that fall outside the abilities of regular officers.

Hostages

Individuals held captive or prisoner by others, typically to compel another party to meet certain demands.

Superstition

Beliefs or practices that are rooted in magical thinking and unscientific correlations between actions and events.