Question
Golf Challenge Corp. is a retail golf shop carrying golf equipment and clothing. The store is at the end of their second year of operations
Golf Challenge Corp. is a retail golf shop carrying golf equipment and clothing. The store is at the end of their second year of operations and is struggling. A major problem is the cost of inventory continues to grow faster than planned. In its first year of operations, the company assigned ending inventory value using LIFO for tax purposes.
The company's bank -- the major source of funding -- has an agreement with Golf Challenge to maintain a certain profit margin (net income/sales) and current ratio (current assets/current liabs). The year two numbers aren't going to make it. The store's owner only option is to change from LIFO to FIFO to make the agreed-upon measures with the bank.
How can switching from LIFO to FIFO make these ratios better? Is this change by the owner ethical?
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