John Martinson,CFA, is an equity analyst with a large pension funds..His supervisor Linda Packard asks him to write a report on Karp Inc.Karp prepares it's financial statements in accordance with U.S GAAP.Parkard is particularly interested in the effects of the company's use of the LIFO method to account for it's inventory. For this purpose, Martinso collects the financial data presented in exhibit F and G.

Exhibit F balance sheet information (US$ Million)

As of 31 december	2009	2008
Cash and Cash equivalents	172	157
Account receivable	626	458
Inventories	620	539
other current assets	125	65
Total current assets	1543	1219
Property and equipment,net	3035	2972
Total assets	4578	4191
Total current Labilities	1495	1395
Long term debt	644	604
Total Labilities	2139	1999
Common stock and paid in capital	1652	1652
Retained earnings	787	540
Total shareholder's equity	2439	2192

Total labilities and shareholder's equity

4578

4191

Exhibit G income statement information (US$million)

For the years ended	2009	2008
Sales	4346	4161
Cost of goods sold	2211	2147
Depreciation and Amortization expense	139	119
selling,general,administrative expense	1656	1637
interest expense	31	18
income tax expense	62	48
Net income	247	192

Martinson finds the following information in the notes to the financial stattements

.The LIFO reserves as of 31 December 2009 and 2008 are $155 million and $117 million respectively

.The effective income tax rate applicable to Karp for 2009 and 2008 and earlier periods is 20%

THE INFORMATION ABOVE RELATES TO THE NEXT 6 QUESTIONS.

If Karp had used FIFO instead of LIFO

1.The amount of inventory reported as of 31december 2009 would have been closest to

a) $465 million (b) $658 million (c) $775 million

2.The amount of cost of goods sold reported by Karp for the year ended 31 Dec 2009 would have been closest to

a) 2,056 million (b) 2,173 million (c) 2,249 million

3.It's reported net income for the year ended 31 december would have been higher by an amount closet to

a) $30 million (b) $38 million (c) 155 million

4.Karp's retained earnings as of 31 december 2009 would have been higher by an amount closest to

a) $117 million (b) $124 million (c) 155 million

5.Which of the following ratios computed as 31 december 2009 would most likely have been lower?

a) Cash ratio (b) Current ratio (c) Gross profit ratio

6. It's debt to equity ratio computed as of 31 december 2009 would have

a) increased (b) decreased (c) Remain unchanged