The Adidas company specializes in the sale of tennis clothing and equipment. Given a storm in 2017, the earthquakes in January 2020, and the pandemic, Adidas is in financial straits. One of the most serious problems facing the company is the precipitous and constant increase in the cost of inventory. In the first year of operations, the company used LIFO as the cost allocation method for the tax advantages obtained. In addition to the problem with the increase in the cost of inventory, an agreement with the Bank requires that Adidas, maintain certain values in current assets in relation to its current debts (current ratio) and that the gross profit margin (profit margin) increase. The only way that margins can be maintained for those financial reasons is for Adidas to switch to FIFO. Adidas accountant recalculates the financial statements using FIFO and sends them to the Bank.

Answer the following questions:

1. Why FIFO can result in a solution to meet the Bank's demands? What is the relationship between the amount of reported assets and FIFO / LIFO?

2. Why did LIFO give you a tax advantage when compared to FIFO?

3. Is it ethically correct to switch from LIFO to FIFO? Why?

4. Does GAAP allow changing from one inventory method to another?

5. Explain the principle or concept that could justify NOT changing from LIFO to FIFO?