Financial statements as of December 31, 1996, for Beverly Company are provided below. Beverly used the FIFO inventory cost flow assumption to prepare the following financial state¬ ments. Income Statement Sales Cost of goods sold: Beginning inventory $20,000 Purchases 40,000 Goods available for sale $60,000 Less: Ending inventory 25,000 Cost of goods sold Gross profit Selling & administrative expenses Net income before taxes Federal income tax (30%) Net income $80,000 35,000 $45,000 20,000 $25,000 7,500 $17,500 Balance Sheet Cash $15,000 Inventory 25,000 Other noncurrent assets 40,000 Total assets $80,000 Current liabilities $18,000 Long-term liabilities 20,000 Stockholders’ equity 42,000 Total liabilities and stockholders’ equity $80,000 On December 31, 1996, Beverly decided to change from the FIFO to the LIFO inventory cost flow assumption. The ending inventory value under the LIFO assumption is $13,000. REQUIRED:

a. Compute the change in Beverly’s current ratio associated with the change from FIFO to LIFO. Round to two decimal places.

b. Compute the change in Beverly’s gross profit and net income associated with the change from FIFO to LIFO. Assume that the dollar amount of the change is reflected in Cost of Goods Sold.

c. How many tax dollars would be saved by the change from FIFO to LIFO?

d. Discuss some of the disadvantages associated with the change to LIFO.