Question s You are in the process of analyzing two similar companics in the same

Question

Question s You are in the process of analyzing two similar companics in the same industry. You learn that they have different accouning practices and policies, as folions 1. Company A, which has the samc tpe of inventory Company B, uces the FIFO cost tormula whiic Company B uscs awerage. Prices have generally been rising in this industry 2. Company A usee the double-diminishing-balance deprodiadion mathad for most of its buildings, whle Company B uses the straight-ina mathod for it building. whlie Company uces the straight-na ma ? Your answer is correct. Considaring only the impact of the chaice of inveory cost formula,determine which company will report a higher (1) curent ratio, (2y debt to total ass ratio, and (3) profit margin ratio, or whether the choice af cost formula wil have no impact. This is the first year of operations for both Higher Company A (2) Debt to total assets ratio Company B Company A (1) Current rotio (3) Profit margin ratio LINK TO TEXT Attemptsi 1 of 2 used Considering only the impact of the chaice of depreciation mathod, determine which company will report a higher (i) current ratio, (2) debt to total assa both companies, ratio, and (3) profit margin ratio, or whether the choice o dapreciation method wil have no impact. Ths is tha first year af aperations for (1) Current ratio (2) Debt to total aets rati (3) Protit margin ratio Company A No imapct Company B

Explanation / Answer

Company A will have higher depreciation and lower profits than Company B. b Higher 1 Current ratio No impact 2 Debt to total assets ratio Company A 3 Profit margin ratio Company B

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