Financial Reporting and Analysis Q232
- Option : B
- Explanation : With rising costs, if the weighted average cost method is used rather than FIFO, the ending inventory would be lower and cost of goods sold will be higher. This will lead to lower net income and retained earnings. Lower retained earnings implies lower equity. Since the level of debt is unchanged, the debt-to-equity ratio (Total debt ÷ Total shareholder’s equity) will increase.
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