Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 6

Analyzing the Impact of Alternative Inventory Methods on Selected Ratios
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. Current ratio.
2. Debt-to-assets ratio.
3. Earnings per share.