The following disclosure was included in the footnotes of Caterpillar€™s 2014 annual report. The company uses the LIFO cost fl ow assumption and reported net income of $3,695 for 2014. The company€™s effective tax rate is 27 percent (dollars in millions).

a. Compute 2014 ending inventory for Caterpillar assuming it changed from LIFO to FIFO at the end of 2014.

b. Compute the accumulated income tax savings enjoyed by Caterpillar due to the choice of LIFO as opposed to FIFO.
c. Compute 2014 reported net income for Caterpillar assuming it changed from LIFO to FIFO several years before.
d. Explain how the information generated in (a), (b), and (c) could be useful.
e. Explain why Caterpillar might oppose a requirement to adopt IFRS by U.S. companies.

Transcribed Image Text:

2014 2013 $14,635 Inventories at current cost Less: Adjustment to LIFO basis Inventories on LIFO basis $15,129 2,504 2,430 $12,205 $12,625