J. C. Penney, Inc., uses the LIFO method for inventories. In a recent annual report, Penney reported these amounts on the balance sheet (in millions):

A note to the financial statements indicated that if another method (assume FIFO) had been used, inventories would have been higher by \(\$ 405\) million at the end of the fiscal year 19X6 and higher by \(\$ 356\) million at the end of 19X5. The income statement reported sales revenue of \(\$ 16,365\) million and cost of goods sold of \(\$ 10,969\) million for 19X6.

Required 1. Show the computation of Penney's cost of goods sold and gross margin for fiscal year \(19 \mathrm{X} 6\) by the LIFO method as actually reported.
2. Compute Penney's cost of goods sold and gross margin for 19X6 by the FIFO method.
3. Which method makes the company look better in 19X6? Give your reason. If Penney used the FIFO method, what would be the amount of inventory profit for \(19 \mathrm{X} 6\) ?
4. Assume an income tax rate of 35 percent. How much in taxes did Penney save by using LIFO?
5. How will what you learned in this problem help you

(a) evaluate an investment;

(b) manage a business?

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End of Fiscal Year 19X6 19X5 Merchandise inventories................. $2,657 $2,613