Consolidated Statement of Income Millions of dollars. except Der-share amounts Notes to the Consolidated Financial Statements Millions of dollars, except per-share amounts Note 1 Summary of Significant Accounting Policies General The company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Although the company uses its best estimates and judgments, actual results could differ from these estimates as circumstances change and additional information becomes known. Prior years' data have been reclassified in certain cases to conform to the 2022 presentation basis. Inventories Crude oil, products and chemicals inventories are generally stated at cost, using a last-in, first-out method. In the aggregate, these costs are below market. "Materials, supplies and other" inventories are primarily stated at cost or net realizable value. Chevron Corporation: Inventory Cost Flow Assumption Attached are the Consolidated Statement of Income, Consolidated Balance Sheet, and selected footnotes from Chevron's 2022 Annual Report. Exhibit 1 shows a plot of crude oil prices between 1986 and 2022 . 1. What was the book value of Chevron's inventories at the end of fiscal years 2022 and 2021 ? 2. What would have been the book value of Chevron's inventories at the end of fiscal years 2022 and 2021 had Chevron used FIFO as their cost flow assumption for all their inventories? 3. What is the trend in Chevron's LIFO reserve between 2021 and 2022? What do you think are some of the factors that have contributed to this trend? 4. As of December 31,2022, had Chevron paid more or less taxes over the years (since its inception) compared to what it would have paid had they used a FIFO cost flow assumption? By how much? (Assume a tax rate of 21% for all years). 5. Did Chevron's choice of inventory method result in higher or lower net income for fiscal years 2022 and 2021 relative to what would have been reported using FIFO? By how much? (Assume a tax rate of 21% for all years). 6. Calculate Chevron's inventory turnover ratio (COGS average inventory) for fiscal year 2022. What would Chevron's inventory turnover ratio have been if FIFO was used to value all inventories? Which measure of inventory turnover (LIFO or FIFO) is a better measure of Chevron's investment in inventory relative to sales? 7. What are the advantages and disadvantages of using LIFO (relative to FIFO)? Consolidated Balance Sheet Millions of dollars, except per-share amounts Exhibit 1 Source: tradingeconomics.com Consolidated Statement of Income Millions of dollars. except Der-share amounts Notes to the Consolidated Financial Statements Millions of dollars, except per-share amounts Note 1 Summary of Significant Accounting Policies General The company's Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States of America. These require the use of estimates and assumptions that affect the assets, liabilities, revenues and expenses reported in the financial statements, as well as amounts included in the notes thereto, including discussion and disclosure of contingent liabilities. Although the company uses its best estimates and judgments, actual results could differ from these estimates as circumstances change and additional information becomes known. Prior years' data have been reclassified in certain cases to conform to the 2022 presentation basis. Inventories Crude oil, products and chemicals inventories are generally stated at cost, using a last-in, first-out method. In the aggregate, these costs are below market. "Materials, supplies and other" inventories are primarily stated at cost or net realizable value. Chevron Corporation: Inventory Cost Flow Assumption Attached are the Consolidated Statement of Income, Consolidated Balance Sheet, and selected footnotes from Chevron's 2022 Annual Report. Exhibit 1 shows a plot of crude oil prices between 1986 and 2022 . 1. What was the book value of Chevron's inventories at the end of fiscal years 2022 and 2021 ? 2. What would have been the book value of Chevron's inventories at the end of fiscal years 2022 and 2021 had Chevron used FIFO as their cost flow assumption for all their inventories? 3. What is the trend in Chevron's LIFO reserve between 2021 and 2022? What do you think are some of the factors that have contributed to this trend? 4. As of December 31,2022, had Chevron paid more or less taxes over the years (since its inception) compared to what it would have paid had they used a FIFO cost flow assumption? By how much? (Assume a tax rate of 21% for all years). 5. Did Chevron's choice of inventory method result in higher or lower net income for fiscal years 2022 and 2021 relative to what would have been reported using FIFO? By how much? (Assume a tax rate of 21% for all years). 6. Calculate Chevron's inventory turnover ratio (COGS average inventory) for fiscal year 2022. What would Chevron's inventory turnover ratio have been if FIFO was used to value all inventories? Which measure of inventory turnover (LIFO or FIFO) is a better measure of Chevron's investment in inventory relative to sales? 7. What are the advantages and disadvantages of using LIFO (relative to FIFO)? Consolidated Balance Sheet Millions of dollars, except per-share amounts Exhibit 1 Source: tradingeconomics.com