Paragliding Corp

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Paragliding Corp. is a mercha

Golf Mart 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 Mart’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 costing method.

Required

How does Golf Mart’s use of FIFO improve its net profit margin and current ratio?

Is the action by Golf Mart’s owner ethical? Explain.

ndizer carrying para gliding gear and kit. At the end of its third year of

operation and is struggling. A major problem is that its cost of inventory has continually increased in

these three 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 Paragliding's

preliminary financial statements for its third year. The numbers are not favorable.

Required:

As an Advisor you must recommend a method that how does Paragliding Corp. improve its net profit

margin and current ratio using Inventory costing methods? And defend your Answer that how it improves

store's net profit margin and current ratio. Also explain that is your answer comply with laws and ethics?