nalyzing an Inventory Footnote Disclosure General Electric Company reports the following footnote in its 10-K report.

December 31 (in millions)	2010	2009
Raw materials and work in process	$ 6,973	$ 7,581
Finished goods	4,435	4,105
Unbilled shipments	456	759
	11,864	12,445
Less revaluation to LIFO	(404)	(529)
	$ 11,460	$ 11,916

The company reports its inventories using the LIFO inventory costing method. (a) What is the balance in inventories reported on GE's 2010 balance sheet? $Answer

(million) (b) What would GE's 2010 balance sheet have reported for inventories had the company used FIFO inventory costing? $Answer

(million) (c) What cumulative effect has GE's choice of LIFO over FIFO had on its pretax income as of year end 2010?

The cumulative effect is that pretax income has not changed. LIFO and FIFO are simply two different ways to account for inventories. Both methods lead to the same pretax income.

The cumulative effect is that pretax income has decreased. LIFO matches more "current" inventory costs against current selling prices, thus avoiding the recognition of holding gains.

The cumulative effect on pretax income is nonexistent. The LIFO and FIFO methods of inventory accounting cause only cash flow effects, and they do not affect pretax income.

The cumulative effect is that pretax income has increased. FIFO matches more "current" inventory costs against current selling prices, thus avoiding the recognition of holding gains.

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(d) Assume GE has a 35% income tax rate. As of the 2010 year-end, how much has GE saved in taxes by choosing LIFO over FIFO method for costing inventory? (Round your answer to the nearest whole number.) $Answer

(million) Has the use of LIFO increased or decreased GE's cumulative taxes paid?

decreased

increased

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(e) What effect has the use of LIFO inventory costing had on GE's pretax income and tax expense for 2010 only (assume a 35% income tax rate)? (Round answers to the nearest whole number.) 2010 pretax income:

increased

decreased

Mark 1.00 out of 1.00

by $Answer

million. 2010 tax expense:

increased

decreased

Mark 1.00 out of 1.00

by $Answer

million.