Question

Analyzing an Inventory Footnote Disclosure General Electric Company reports the following footnote in its 10-K report. The company reports its inventories using the LIFO inventory costing method. December 31 (in millions) 2015 2014 Raw materlals and work in process $13,415 9,963 8,199 6,982 628 755 22,243 17,701 206 (62) $22.449 s17,639 Finished goods Unbilled shipments Less revaluation tO LIFO (a) What is the balance in inventories reported on GE'S 2015 balance sheet? million) (b) What would GE's 2015 balance sheet have reported for inventories had the company used FIFO inventory costing? (million) (c) What cumulative effect has GE's choice of LIFO over FIFO had on its pretax income as of year end 2015? OThe cumulative effect is that pretax income has decreased. LIFO matches more "current" inventory costs against current selling prices, thus avoiding the recognition of holding gains. OThe cumulative effect is that pretax income has not changed. LIFO and FIFO are simply two different ways to account for inventories. Both methods lead to the same pretax income OThe cumulative effect on pretax income is nonexistent. The LIFO and FIFO methods of inventory accounting cause only cash flow effects, and they do not affect pretax income OThe cumulative effect is that pretax income has increased. LIFO matches more "current" inventory costs against current selling prices, thus avoiding the recognition of holding gains. (d) Assume GE has a 35% income tax rate. As of the 2015 year-end, how much has GE saved in taxes by choosing LIFO over FIFO method for costing inventory? Round your answer to the nearest whole number. Use a negative sign with answer, if GE paid more in taxes by choosing LIFO. illion) Has the use of LIFO increased or decreased GE's cumulative taxes paid? Odecreased increased (e) What effect has the use of LIFO inventory costing had on GE's pretax income and tax expense for 2015 only (assume a 35% income tax rate)? Round answers to the nearest whole number 2015 pretax income: by $ million. 2015 tax expense: million.

Answer 1