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Social ScienceAnalyzing Inventory Disclosure Comparing LIFO & FIFOThe current asset section of the 2014 and 103 fiscal year end balance sheet of The Kroger Co are presented in the accompany tables: a. At what dollar amount does Kroger report its inventory in its Jan. 31, 205 balance sheet? b. What is the cumulative effect (through Jan. 31, 2015) of the use of LIFO on Kroger’s pretax earning? c. Assuming a 35% tax rate, what is the cumulative (through Jan. 31, 2015) tax effect of the use of LIFO to determine inventory costs?d. Kroger reported net earnings of $1,728 million in its fiscal year 2014 income statement. Assuming a 35% tax rate, what amount of net earnings would Kroger report if the company is using FIFO inventory costing methods?e. Kroger reported merchandise cost of $85,512 M in fiscal year 2014. Compute the inventory turnover for the year.f. How would the inventory turnover ratio differ if the FIFO costing method had been used?Current asset (in millions) Jan. 31,2015 Feb. 1, 2014Cash & temporary cash investment 268 401Deposits in transit 988 958Receivables 1,266 1,116FIFO Inventory 6,933 6,801LIFO credit (1,245) (1,150)Prepaid & other current assets 701 704Total current Assets 8,911 8830
Analyzing Inventory Disclosure Comparing LIFO & FIFO
The current asset section of the 2014 and 103 fiscal year end balance sheet of The Kroger Co are presented in the accompany tables:
a. At what dollar amount does Kroger report its inventory in its Jan. 31, 205 balance sheet?
b. What is the cumulative effect (through Jan. 31, 2015) of the use of LIFO on Kroger’s pretax earning?
c. Assuming a 35% tax rate, what is the cumulative (through Jan. 31, 2015) tax effect of the use of LIFO to determine inventory costs?
d. Kroger reported net earnings of $1,728 million in its fiscal year 2014 income statement. Assuming a 35% tax rate, what amount of net earnings would Kroger report if the company is using FIFO inventory costing methods?
e. Kroger reported merchandise cost of $85,512 M in fiscal year 2014. Compute the inventory turnover for the year.
f. How would the inventory turnover ratio differ if the FIFO costing method had been used?
Current asset (in millions) Jan. 31,2015 Feb. 1, 2014
Cash & temporary cash investment 268 401
Deposits in transit 988 958
Receivables 1,266 1,116
FIFO Inventory 6,933 6,801
LIFO credit (1,245) (1,150)
Prepaid & other current assets 701 704
Total current Assets 8,911 8830
Expert Answer
The LIFO strategy works under the presumption that the last item of stock acquired, is the item that is sold first.
The FIFO strategy states that the stock that is delivered or procured first is sold, utilized, or discarded first.
- To calculate inventory as on 31st Jan. 2015:
FIFO inventory – FIFO credit= $6,933 - $1,245 = $5,688
- Cumulative tax effect of LIFO= Decrease in pretax income= $1,245
- Cumulative tax effect of LIFO= LIFO reserve × tax rate
&nb...
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