An analyst is comparing two companies; one uses the LIFO inventory cost flow assumption, and the other uses the FIFO inventory cost flow assumption.If prices are rising, how will the FIFO using company's gross margin and current ratio compared to the LIFO using company's, if all other factors are equal? $$\begin{array} { l l l }
& \text { FIFO } &{ \text { FIFO } } \
& \text { Gross Margin } & \text { Current ratio } \\hline
\text { A. } & \text { Higher } & \text { Higher } \
\text { B. } & \text { Higher } & \text { Lower } \
\text { C. } & \text { Lower } & \text { Higher } \
\text { D. } & \text { Lower } & \text { Lower }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Question

An analyst is comparing two companies; one uses the LIFO inventory cost flow assumption, and the other uses the FIFO inventory cost flow assumption.If prices are rising, how will the FIFO using company's gross margin and current ratio compared to the LIFO using company's, if all other factors are equal? $$\begin{array} { l l l } 
& \text { FIFO } &{ \text { FIFO } } \
& \text { Gross Margin } & \text { Current ratio } \\hline
\text { A. } & \text { Higher } & \text { Higher } \
\text { B. } & \text { Higher } & \text { Lower } \
\text { C. } & \text { Lower } & \text { Higher } \
\text { D. } & \text { Lower } & \text { Lower }
\end{array}$$
A)Option A
B)Option B
C)Option C
D)Option D

Quizplus · Accepted Answer

Under FIFO, the cost of goods sold reflects older, typically lower costs compared to LIFO during periods of rising prices, resulting in a higher gross margin. Additionally, FIFO results in higher inventory values on the balance sheet, leading to a higher current ratio.

An Analyst Is Comparing Two Companies; One Uses the LIFO