Company A uses the FIFO inventory method and Company B uses the LIFO method.If prices are rising and there are no other significant differences between the companies,which of the following is correct?
A)Company A will report a higher current ratio and lower earnings per share than Company B.
B)Company A will report a higher current ratio and higher earnings per share than Company B.
C)Company A will report a lower current ratio and higher earnings per share than Company B.
D)Company A will report a lower current ratio and lower earnings per shares than Company B.

Question

Quizplus · Accepted Answer

Current ratio = Current assets ÷ Current Liabilities
Earnings per share = (Net income − preferred dividends)÷ Average number of common shares outstanding
During a period of rising prices,current assets (inventory)will be higher if FIFO is used,so the current ratio will be higher for Company A.Net income will also be higher when FIFO is used,so Company A's EPS will also be higher.

Company a Uses the FIFO Inventory Method and Company B