The following inventory note appears in General Electrics Year 3 annual report. LIFO revaluations decreased $70 million
Question:
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LIFO revaluations decreased $70 million in Year 3, compared with decreases of $169 million in Year 2 and $82 million in Year 1. Included in these changes were decreases of $21 million, $8 million, and $6 million in Year 3, Year 2, and Year 1, respectively, that resulted from lower LIFO inventory levels. There were net cost decreases in each of the last three years.
GE€™s earnings before income taxes were $18.891 billion in Year 3. Assume a 35% marginal tax rate.
Required:
1. What are the total cumulative tax savings as of December 31, Year 3 that GE has realized as a result of using the LIFO inventory method?
2. What would GE€™s pre-tax earnings have been in Year 3 if it had been using FIFO?
3. What December 31, Year 3 balance sheet figures would be different€”and by how much€”if GE had used FIFO to account for its inventories?
4. What were the LIFO liquidation profits reported in Year 3 both pre-tax and after-tax?
5. Explain what factors cause the difference between the LIFO pre-tax income number and the FIFO pre-tax income number you estimated in requirement 2.
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Requirement 1 What are the total tax savings as of 1231Year 3 that GE has realized as a result of us...View the full answer
