Using LIFO rather than FIFO in a time of rising prices:
I. lowers the current ratio
II. increases inventory turnover
III. increases profit margin
IV. increases debt/equity ratio
A) I, II and IV
B) I and II
C) II and III
D) I only

Question

Quizplus · Accepted Answer

Using LIFO in a time of rising prices results in higher cost of goods sold, which lowers net income and profit margin (III is incorrect). It also results in lower ending inventory values, which can lower the current ratio (I is correct) and increase inventory turnover (II is correct). Lower net income can lead to a higher debt/equity ratio if equity is reduced (IV is correct).

Using LIFO Rather Than FIFO in a Time of Rising