Consolidated Balance Sheets Walgreen Co. and Subsidiaries at August 31, 2013 and 2012 (in millions, except shares and per share amounts)
	2013	2012
Assets
Current Assets
Cash and cash equivalents	$ 2,106	$ 1,297
Accounts receivable, net	2,632	2,167
Inventories	6,852	7,036
Other current assets	284	260
Total Current Assets	11,874	10,760
Noncurrent Assets
Property and equipment, at cost, less accumulated depreciation and amortization	12,138	12,038
Equity investment in Alliance Boots	6,261	6,140
Alliance Boots call option	839	866
Goodwill	2,410	2,161
Other noncurrent assets	1,959	1,497
Total Noncurrent Assets	23,607	22,702
Total Assets	$ 35,481	$ 33,462
Liabilities and Shareholders Equity
Current Liabilities
Short-term borrowings	$ 570	$ 1,319
Trade accounts payable	4,635	4,384
Accrued expenses and other liabilities	3,577	3,019
Income taxes	101
Total Current Liabilities	8,883	8,722
NonCurrent Liabilities
Long-term debt	4,477	4,073
Deferred income taxes	600	545
Other noncurrent liabilities	2,067	1,886
Total Noncurrent Liabilities	7,144	6,504
Commitments and Contingencies (see Note)
Shareholders Equity
Preferred stock, $.0625 par value; authorized 32 million shares; none issued
Common stock, $.078125 par value; authorized 3.2 billion shares; issued 1,028,180,150 shares in 2013 and 2012	80	80
Paid-in capital	1,074	936
Employee stock loan receivable	(11)	(19)
Retained earnings	21,523	20,156
Accumulated other comprehensive (loss) income	(98)	68
Treasury stock at cost, 81,584,572 shares in 2013 and 84,124,816 shares in 2012	(3,114)	(2,985)
Total Shareholders Equity	19,454	18,236
Total Liabilities and Shareholders Equity	$ 35,481	$ 33,462
The accompanying Notes to Consolidated Financial Statements are integral parts of these statements.

Notes to Consolidated Financial Statements

1. Summary of Major Accounting Policies

Description of Business

The Company is principally in the retail drugstore business and its operations are within one reportable segment. At August 31, 2013 there were 8,582 drugstore and other locations in 50 states, the District of Columbia, Guam, and Puerto Rico. Prescription sales were 62.9% of total sales for fiscal 2013 compared to 63.2% in 2012 and 64.7% in 2011.

Allowance for Doubtful Accounts

The provision for bad debt is based on both historical write-off percentages and specifically identified receivables. Activity in the allowance for doubtful accounts was as follows (In millions):

	2013	2012	2011
Balance at beginning of year	$ 99	$ 101	$ 104
Bad debt provision	124	107	88
Write-offs	(69)	(109)	(91)
Balance at end of year	$ 154	$ 99	$ 101

Inventories

Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2013 and 2012, inventories would have been greater by $2.1 billion and $1.9 billion, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. As a result of declining inventory levels, the fiscal 2013 and 2012 LIFO provisions were reduced by $194 million and $268 million of LIFO liquidation, respectively. Inventory includes product costs, inbound freight, warehousing costs, and vendor allowances not classified as a reduction of advertising expense.

3. Leases

The Company owns 20.2% of its operating locations; the remaining locations are leased premises. Initial terms are typically 20 to 25 years, followed by additional terms containing renewal options at five-year intervals, and may include rent escalation clauses. The commencement date of all lease terms is the earlier of the date the Company becomes legally obligated to make rent payments or the date the Company has the right to control the property. The Company recognizes rent expense on a straight-line basis over the term of the lease. In addition to minimum fixed rentals, some leases provide for contingent rentals based upon a portion of sales.

Minimum rental commitments at August 31, 2013, under all leases having an initial or remaining non-cancelable term of more than one year are shown below (In millions):

	Capital Lease	Operating Lease
2014	$ 19	$ 2,536
2015	19	2,514
2016	18	2,464
2017	17	2,389
2018	15	2,292
Later	270	23,507
Total minimum lease payments	$ 358	$ 35,702

The capital lease amount includes $155 million of imputed interest and executory costs. Total minimum lease payments have not been reduced by minimum sublease rentals of approximately $140 million on leases due in the future under non-cancelable subleases.

The Company remains secondarily liable on 26 assigned leases. The maximum potential undiscounted future payments are $18 million at August 31, 2013. Lease option dates vary, with some extending to 2041.

Walgreen Co. Information from Consolidated Statements of Comprehensive Income
For the Years Ended August 31, 2013 and 2012 (in millions)
	2013	2012
Sales	$ 72,217	$ 71,633
Net income	$ 2,450	$ 2,127
Extracted from 10-K filings for Walgreen Co. 2013. Obtained from U.S. Securities and Exchange Commission. www.sec.gov.

Please help answer following questions:

1) Which current asset is the most significant? Which noncurrent asset is the most significant? Are the relative proportions of current and noncurrent assets what you would expect for a drug store?

2) Analyze accounts receivable and allowance for doubtful accounts.

3) What inventory method is used to value inventories? Has Walgreen experienced inflation or deflation? Explain your answer. Explain the reference in the inventory note to the LIFO liquidation and what this means with regard to the net income reported.