QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

67. An analyst is analyzing two companies in the same industry and believes that they have similar strategies regarding the use of property, plant, and equipment (PP&E). He also thinks that the PP&E assets of the two companies are roughly of the same age and have the same expected useful lives remaining. Company A uses the LIFO method of inventory valuation, and Company B uses the FIFO method. The following additional information is available from the companies’ financial statements: $ millions Company A Company BCurrent assets 5,800 6,300Inventory LIFO reserve 1,100 N/ACurrent liabilities 4,300 4,200Gross PP&E 2,500 3,000Accumulated depreciation 1,250 1,200Depreciation expense 125 120In the analyst’s opinion, which of the following conclusions is most appropriate? Compared with Company A, Company B: A. is more liquid. B. has a higher quality of earnings. C. uses more aggressive accounting estimates related to PP&E.