2A2M GLOBETRADE IS A RETAILER THAT BUYS VIRTUALLY ALL OF ITS MERCHAND...

58.

CSO: 2A2c

LOS: 2A2m

Globetrade is a retailer that buys virtually all of its merchandise from manufacturers in a

country experiencing significant inflation. Globetrade is considering changing its method

of inventory costing from first-in, first-out (FIFO) to last-in, first-out (LIFO). What

effect would the change from FIFO to LIFO have on Globetrade’s current ratio and

inventory turnover ratio?

a.

Both the current ratio and the inventory turnover ratio would increase.

b.

The current ratio would increase but the inventory turnover ratio would decrease.

c.

The current ratio would decrease but the inventory turnover ratio would increase.

d.

Both the current ratio and the inventory turnover ratio would decrease.