Analyzing Inventory Disclosure Comparing LIFO and FIFO
The current asset section of the 2014 and 2013 fiscal year endbalance sheets of The Kroger Co. are presented in the accompanyingtable:
$ millions January 31,
2015 February 1,
2014 Current assets Cash and temporary cash investments $188 $825 Deposits in-transit 786 666 Receivables 949 845 FIFO inventory 6,297 5,793 LIFO credit (1,083) (827) Prepaid and other current assets 288 319 Total current assets $7,425 $7,621
In addition, Kroger provides the following footnote describingits inventory accounting policy (assume the following is theircomplete disclosure):
Inventories are stated at the lower of cost (principally on a LIFObasis) or market. In total, approximately 95% of inventories in2014 and 2013 were valued using the LIFO method. Cost for thebalance of the inventories, including substantially all fuelinventories, was determined using the FIFO method. Replacement costwas higher than the carrying amount by $1,043 million at January31, 2015 and $827 million at February 1, 2014. We follow theLink-Chain, Dollar-Value LIFO method for purposes of calculatingour LIFO charge or credit.
Required:
a. At what dollar amount does Kroger report its inventory in itsJanuary 31, 2015, balance sheet?
$Answer million
b. What is the cumulative effect (through January 31, 2015) of theuse of LIFO on Kroger's pretax earnings? (Show an increase as apositive number and a decrease as a negative number.)
$Answer million
c. Assuming a 35% tax rate, what is the cumulative (through January31, 2015) tax effect of the use of LIFO to determine inventorycosts?
(Show an increase as a positive number and a decrease as a negativenumber.)
(Round your answers to one decimal place.)
$Answer million
d. Kroger reported net earnings of $602 million in its fiscal year2014 income statement. Assuming a 35% tax rate, what amount of netearnings would Kroger report if the company used the FIFO inventorycosting method?
(Round your answers to one decimal place.)
$Answer million
e. Kroger reported merchandise costs (cost of goods sold) of$71,494 million in fiscal year 2014. Compute its inventory turnoverfor the year.
(Round your answers to one decimal place.)
Answer
f. Calculate the inventory turnover ratio if the FIFO costingmethod had been used.
(Round your answers to one decimal place.)
Answer
Analyzing Inventory Disclosure Comparing LIFO and FIFO
The current asset section of the 2014 and 2013 fiscal year endbalance sheets of The Kroger Co. are presented in the accompanyingtable:
| $ millions | January 31, 2015 | February 1, 2014 |
|---|---|---|
| Current assets | ||
| Cash and temporary cash investments | $188 | $825 |
| Deposits in-transit | 786 | 666 |
| Receivables | 949 | 845 |
| FIFO inventory | 6,297 | 5,793 |
| LIFO credit | (1,083) | (827) |
| Prepaid and other current assets | 288 | 319 |
| Total current assets | $7,425 | $7,621 |
In addition, Kroger provides the following footnote describingits inventory accounting policy (assume the following is theircomplete disclosure):
Inventories are stated at the lower of cost (principally on a LIFObasis) or market. In total, approximately 95% of inventories in2014 and 2013 were valued using the LIFO method. Cost for thebalance of the inventories, including substantially all fuelinventories, was determined using the FIFO method. Replacement costwas higher than the carrying amount by $1,043 million at January31, 2015 and $827 million at February 1, 2014. We follow theLink-Chain, Dollar-Value LIFO method for purposes of calculatingour LIFO charge or credit.
Required:
a. At what dollar amount does Kroger report its inventory in itsJanuary 31, 2015, balance sheet?
$Answer million
b. What is the cumulative effect (through January 31, 2015) of theuse of LIFO on Kroger's pretax earnings? (Show an increase as apositive number and a decrease as a negative number.)
$Answer million
c. Assuming a 35% tax rate, what is the cumulative (through January31, 2015) tax effect of the use of LIFO to determine inventorycosts?
(Show an increase as a positive number and a decrease as a negativenumber.)
(Round your answers to one decimal place.)
$Answer million
d. Kroger reported net earnings of $602 million in its fiscal year2014 income statement. Assuming a 35% tax rate, what amount of netearnings would Kroger report if the company used the FIFO inventorycosting method?
(Round your answers to one decimal place.)
$Answer million
e. Kroger reported merchandise costs (cost of goods sold) of$71,494 million in fiscal year 2014. Compute its inventory turnoverfor the year.
(Round your answers to one decimal place.)
Answer
f. Calculate the inventory turnover ratio if the FIFO costingmethod had been used.
(Round your answers to one decimal place.)
Answer
