In its December 31, 1994, annual report, Amoco Corporation reported the following inventories: MILLIONS OF DOLLARS 1994 1993 Crude oil and petroleum products $ 349 $ 415 Chemical products 375 377 Other products and merchandise 24 21 Materials and supplies 294 $1,042 297 $1,110 During the year ended December 31, 1993, the corporation reduced certain inventory quantities which were valued at lower LIFO costs prevailing in prior years. The effect of this reduction was to increase net income by approximately $50 million. The similar effect in 1994 was not material. Inventories carried under the LIFO method represented approximately 51 percent of total year-end inventory carrying values in 1994 and 47 percent in 1993. It is estimated that inven¬ tories would have been approximately $1,100 million higher than reported on December 31, 1994, and approximately $900 million higher on December 31, 1993, if the quantities valued on the LIFO basis were instead valued on the FIFO basis. REQUIRED:

a. Why would a potential investor or creditor who is considering investing in Amoco be inter¬ ested in the difference between LIFO and FIFO inventory values?

b. Explain why reducing certain inventory quantities, valued under LIFO, would increase net income and why an investor would be interested in such a disclosure.

c. Assuming a tax rate of 30 percent, approximately how much more income tax would Amoco have paid if at the end of 1994 it switched to FIFO for all of its inventory? Assume that inventories presently not carried at LIFO are carried at FIFO.