Hello Good Morning, Hope all things are going well on your
Here is my Question..
Golf Challenge Corp. is a retail sports store carrying golf
apparel and equipment. The store is at the end of its second year of operation
and is struggling. A major problem is that its cost of inventory has
continually increased in the past two years. In the first year of operations,
the store assigned inventory costs using LIFO. A loan agreement the store has
with its bank, its prime source of financing, requires the store to maintain a
certain profit margin and current ratio. The store's owner is currently looking
over Golf Challenge's preliminary financial statements for its second year. The
numbers are not favorable. The only way the store can meet the required
financial ratios agreed on with the bank is to change from LIFO to FIFO. The
store originally decided on LIFO because of its tax advantages. The owner
recalculates ending inventory using FIFO and submits those numbers and
statements to the loan officer at the bank for the required bank review. The
owner thankfully reflects on the available latitude in choosing the inventory
How does Golf Challenge's use of FIFO improve
its net profit margin and current ratio?
Is the action by Golf Challenge's owner ethical?
Thanks In Advance.