Ford Motor (automotive) and Caterpillar (heavy equipment) both use the LIFO inventory valuation method. Caterpillar uses it for 70% of its inventories and Ford for 28% of its inventories. Data from the 2009 10-K filings of these two companies follow (in millions of U.S. dollars):
____________________________________________________Ford................Caterpillar
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,016..................$23,886
LIFO inventory, beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,988......................8,781
LIFO inventory, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,450......................6,360
LIFO reserve, beginning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 850......................3,183
LIFO reserve, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .798......................3,003
1. For both companies, as of the end of 2009, the existence of a LIFO reserve demonstrates that LIFO inventory is less than it would have been if FIFO had been used. For both companies, compute the ratio of LIFO inventory/FIFO inventory for 2009 ending inventory. Comment on the resulting numbers.
2. For Caterpillar, compute what 2009 cost of goods sold would have been if FIFO had been used.
3. What might have caused Caterpillar's LIFO reserve to be so much larger than Ford's?
4. If a company uses FIFO, can you use financial statement data to compute what its cost of goods sold would be using LIFO? Explain.