Analyzing an Inventory Footnote DisclosureThe inventory footnote from Deere & Company’s 2015 10-K follows.Inventories Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the “last-in, first-out” (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the “first-in, first-out” (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 66 percent and 65 percent of worldwide gross inventories at FIFO value at October 31, 2015 and 2014, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows:$ millions20152014Raw materials and supplies$1,559$1,724Work-in-process450654Finished goods and parts3,2343,360Total FIFO value5,2435,738Less adjustment to LIFO value1,4261,528Inventories$3,817$4,210 This footnote reveals that not all of Deere's inventories are reported using the same inventory costing method (companies can use different inventory costing methods for different inventory pools).a. What amount does Deere report for inventories on its 2015 balance sheets? $______millionb. What would Deere have reported as inventories on its 2015 balance sheet had the company used FIFO inventory costing for all of its inventories? $______ millionc. What cumulative effect has the use of LIFO inventory costing had, as of year-end 2015, on Deere's pretax income compared with the pretax income it would have reported had it used FIFO inventory costing for all of its inventories?Deere's cumulative pretax income has Answerdecreasedincreased by $______million since it adpoted LIFO inventory costing.d. Assuming a 35% income tax rate, by what cumulative dollars amount has Deere's tax expense been affected by use of LIFO inventory costing as of year-end 2015?Has the use of LIFO inventory costing increased or decreased Deere's cumulative tax expense?(Round answer to one decimal place.)Deere's cumulative income taxes were Answerhigherlower by $_______million as compared to the taxes that would've been paid under the FIFO system.e. What effect has the use of LIFO inventory costing had on Deere's pretax income and tax expense for 2015 only (assume a 35% income tax rate)?(Round answers to one decimal place, if applicable.)2015 pretax income Answerdecreasedincreased by $______million.2015 tax expense Answerdecreasedincreased by $______million.

Question
Asked Sep 17, 2019
134 views

Analyzing an Inventory Footnote Disclosure
The inventory footnote from Deere & Company’s 2015 10-K follows.

Inventories Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the “last-in, first-out” (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the “first-in, first-out” (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 66 percent and 65 percent of worldwide gross inventories at FIFO value at October 31, 2015 and 2014, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows:

$ millions

2015 2014
Raw materials and supplies $1,559 $1,724
Work-in-process 450 654
Finished goods and parts 3,234 3,360
Total FIFO value 5,243 5,738
Less adjustment to LIFO value 1,426 1,528
Inventories $3,817 $4,210

 

This footnote reveals that not all of Deere's inventories are reported using the same inventory costing method (companies can use different inventory costing methods for different inventory pools).

a. What amount does Deere report for inventories on its 2015 balance sheets? $______million

b. What would Deere have reported as inventories on its 2015 balance sheet had the company used FIFO inventory costing for all of its inventories? $______ million

c. What cumulative effect has the use of LIFO inventory costing had, as of year-end 2015, on Deere's pretax income compared with the pretax income it would have reported had it used FIFO inventory costing for all of its inventories?

Deere's cumulative pretax income has Answerdecreasedincreased by $______million since it adpoted LIFO inventory costing.

d. Assuming a 35% income tax rate, by what cumulative dollars amount has Deere's tax expense been affected by use of LIFO inventory costing as of year-end 2015?

Has the use of LIFO inventory costing increased or decreased Deere's cumulative tax expense?
(Round answer to one decimal place.)
Deere's cumulative income taxes were Answerhigherlower by $_______million as compared to the taxes that would've been paid under the FIFO system.

e. What effect has the use of LIFO inventory costing had on Deere's pretax income and tax expense for 2015 only (assume a 35% income tax rate)?
(Round answers to one decimal place, if applicable.)
2015 pretax income Answerdecreasedincreased by $______million.
2015 tax expense Answerdecreasedincreased by $______million.

 

check_circle

Expert Answer

Step 1

a.

Deere shows inventories at $3817 million, on its balance sheet for period 2015.

Step 2

b.

If Deere & Company had used FIFO method for valuing inventories, then would have recorded at $5243 million, in 2015.

Step 3

c.

If LIFO method is used, instead of FIFO method, it will decrease the pretax income of Deere & Company by $1426 million. This situation arises due to inc...

help_outline

Image Transcriptionclose

Decrease in pretax income = Total FIFO value -LIFO Adjustments $5,243 million - $3,817 million $1,426 million

fullscreen

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Inventory costing

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: I need help with questions 4/5/6A   Lou Barlow, a divisional manager for Sage Company, has an opport...

A: 4. Profitability index is measured by dividing the present value of the future cash flows by the ini...

question_answer

Q: What represents a company’s primary means of cummunicaying information to external users?

A: First of all, we need to understand who are external users- these are the people who are interested ...

question_answer

Q: In 1994, General Mills Incorporated, a $6 billion consumer goods company, acquired Colombo Frozen Yo...

A: 1. Colombo  Frozen Yogurt business was mainly sale of soft-serve frozen yogurt and initially they us...

question_answer

Q: Which of the following estates will need to file a federal estate tax return assuming that the deced...

A: Hello, since you have posted a question with multiple sub-parts, we will solve first three subparts ...

question_answer

Q: Scott Manufacturing makes only one product with total unit manufacturing costs of $54, of which $40 ...

A: a) Prepare gross profit computations for 2019 and 2020 using absortion costing: 

question_answer

Q: What is the difference between account receivable and account payable ?

A: Diffecrence between the accounts receivable an accounts payable are as follows:

question_answer

Q: not sure how to slove those questions

A: (a) 

question_answer

Q: Nash Corporation had net sales of $2,417,500 and interest revenue of $39,900 during 2017. Expenses f...

A: Multi-step income statement: The income statement represented in multi-steps with several subtotals,...

question_answer

Q: In preparing a balance sheet restricted cash to be used in 10 years goes under what heading?

A: Restricted cash is the amount of cash kept aside for some restricted purposes, to ensure that adequa...