Company B, an auto parts company, made several acquisitions with newly issued stock over the past five years using the purchase method of accounting. In each case, the purchase price exceeded the fair value of the acquired company’s net assets. AutoParts Heaven, a competitor, made no acquisitions. Wholesale prices of auto parts have been rising over the last five years. Both Company B and AutoParts Heaven account for inventories using the FIFO method.
Required:
1. Briefly explain why Company B's acquisition history makes it difficult to analyze the trend of its financial data and ratios.
2. Briefly explain why Company B's acquisition history makes it difficult to compare its ratios with those for AutoParts Heaven.

3. For each of the following financial measures, compare the effect (higher, lower, or no effect) of the purchase method on the financial measure of Company B to the effect of the pooling-of-interests method. Briefly explain why each effect occurs:

a. Gross profit margin percentage.

b. Long-term debt-to-equity ratio.

c. Pre-tax earnings.