Please refer to the following question: Which of the following statements regarding inventory accounting methods is TRUE? In periods of: A) rising prices and stable unit purchases, using the FIFO method results in higher inventory turnover than the LIFO method. B) declining prices and stable unit purchases, the tax benefits of using LIFO are increased. C) declining prices FIFO results in higher net income than LIFO. D) rising prices and stable unit purchases, using the LIFO method results in a lower current ratio than the FIFO method. The answer is D. What i don’t understand is “stable unit purchases”. If the unit price is stable, both LIFO and FIFO results in same current ratio, right? Thanks,
“rising prices” and “stable purchases” are not the same thing. Price is not the same as quantity.
I understand it now. What it meant is, rising prices and stable quantity purchases. If the quantity purchases are declining, it would result in LIFO liquidation.