Define the concept of lifo and fifo

Reference no: EM131491393

Question: Inventory Accounting, P/B, and P/E Ratios: Ford Motor Company (Medium) Ford Motor Company uses the last in, first out (LIFO) method for most of its inventories in its Automotive Division. The amounts of the LIFO reserve reported in footnotes for 1999 were

1999 1998

LIFO reserve $1.1 billion $1.2 billion

Ford reported total shareholder; equity of $27.537 billion at the end of 1999 and $23.409 billion at the end of 1998, and it reported earnings for 1999 of $7.237 billion. The firms 1.21 billion outstanding shares traded at $53 at the end of 1999. Ford faces a statutory tax rate of 36 percent.

a. What would have been Fords shareholders; equity at the end of 1999 and 1998 if it had used the first in, first out (FIFO) method to record its inventories?

b. What return on common equity would Ford have reported in 1999 if it had used FIFO?

c. Compare Fords price-to-book ratios at the end of 1999 under LIFO and FIFO, and explain the difference.

d. Compare the firms P/E ratio under LIFO and FIFO, and explain the difference.

Reference no: EM131491393

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