The inventory footnote from Deere \& Company's 2012 10-K follows.

This footnote reveals that not all of Deere's inventories are reported using the same inventory costing method (companies can use different inventory costing methods for different inventory pools).

a. What amount does Deere report for inventories on its 2012 balance sheet?

b. What would Deere have reported as inventories on its 2012 balance sheet had the company used FIFO inventory costing for all of its inventories?

c. What cumulative effect has the use of LIFO inventory costing had, as of year-end 2012, on Deere's pretax income compared with the pretax income it would have reported had it used FIFO inventory costing for all of its inventories? Explain.

d. Assuming a 35\% income tax rate, by what cumulative dollar amount has Deere's tax expense been affected by use of LIFO inventory costing as of year-end 2012? Has the use of LIFO inventory costing increased or decreased Deere's cumulative tax expense?
\(e\). What effect has the use of LIFO inventory costing had on Deere's pretax income and tax expense for 2012 only (assume a 35\% income tax rate)?

Transcribed Image Text:

Inventories Most inventories owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the "last-in, first-out" (LIFO) basis. Remaining inventories are generally valued at the lower of cost, on the "first-in, first-out" (FIFO) basis, or market. The value of gross inventories on the LIFO basis represented 61 percent and 59 percent of worldwide gross inventories at FIFO value at October 31, 2012 and 2011, respectively. If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows: