Question

Cruz Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes.

	2017	2016
LIFO Inventory	\(160	\)110
LIFO Cost of goods sold	740	680
FIFO Inventory	240	110
FIFO Cost of goods sold	660	645
Current assets (Using LIFO)	220	180
Current liabilities	200	170

Comment on and interpret the results of part 1.

Short answer

Thebusiness entity reflects a good position under the LIFO numbers in terms of liquidity as compared to FIFO numbers.

Step-by-step solution

Definition of Current Ratio

The current ratio can be defined as the financial metric reflecting the ability of the company to comply with its short-term obligations.

Interpretation of results

1. Current ratio under the FIFO number is reflecting the good position of the business entity in terms of liquidity.
2. Inventory turnover ratio and days sales in inventory are reflecting the good position of the business entity under LIFO numbers.

Conclusion: The business entity must adopt the LIFO method because it reflects a good position compared to FIFO numbers.