The following three ratios have been computed using the financial statements for the year ended December 31, 2011, for Fun Science Company:The following additional information has been assembled:(a) Fun Science uses the LIFO method of inventory valuation. Beginning inventory was $23,000, and ending inventory was $32,000. If Fun Science had used FIFO, beginning inventory would have been $41,000 and ending inventory would have been $57,200.(b) Fun Science’s sole depreciable asset was purchased on January 1, 2008. The asset cost $140,000 and is being depreciated over seven years with no estimated salvage value. Although the 7-year life is within the acceptable range, most firms in Fun Science’s industry depreciate similar assets over five years. (c) For 2011, Fun Science decided to recognize a $24,000 liability for future environmental cleanup costs. Most other firms in Fun Science’s industry have similar environmental cleanup obligations but have decided that the amounts of the obligations are not reasonably estimable at this time; on average, these firms recognized only 10% of their total environmental cleanup obligation.Instructions:1. How would the values for the three ratios just computed differ if Fun Science had used FIFO, depreciated the asset over five years, and recognized only 10% of its environmental cleanup obligation? Do not think of these as accounting changes; compute how the financial statements would differ if the alternate accounting methods had been used to begin with. Ignore any income tax effects.2. What dangers are there in comparing a company’s financial ratios with summary industryratios?
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The following three ratios have been computed using the financia



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