owing disclosure was included in the footnotes of Caterpillar\'s 2012 annual rep

Question

owing disclosure was included in the footnotes of Caterpillar's 2012 annual report. The company cost flow assumption and reported net income of $5,681 for 2012. The com pany's effective zx rate is 31 percent (dollars in millions). 2012 2011 Inventories at current cost Less: Adjustment to LIFO basis Inventories on LIFO basis $18,297 $16,966 2,750 2,422 $15,547$14,544 a. Compute 2012 ending inventory for Caterpillar assuming it changed from LIFO to FIFO at the end of b. Compute the accumulated income tax savings enjoyed by Caterpillar due to the choice of LIFO as c. Compute 2012 reported net income for Caterpillar assuming it changed from LIFO to FIFO several d. Explain how the information generated in (a), (b), and (c) could be useful. 2012. opposed to FIFO. years before. c. Explain why Caterpillar might oppose a requirement to adopt IFRS by U.S. companies.

Explanation / Answer

a. 2012 ending inventory assuming it changed from LIFO to FIFO at the end of 2012 Inventories on LIFO basis                                                                           $15,547 Add: Adjustment to LIFO basis                                                                 $2,750 Inventories on FIFO basis                                                                           $18,297 b. Accumulated tax savings Accumulated tax savings = tax rate x adjustment to LIFO basis                                                    = 31% x $2750                                                    = $852.50 Due to adjustment to LIFO basis, net income decreased by that amount c. The reported net income for Caterpillar would be $8431 ($5681+$2750) assuming it changed from LIFO to FIFO several years before. d. The information generated in (a), (b) and ( c ) can be used by the users to compare Caterpillar with other companies within the same industry, who uses FIFO cost flow assumption. It also show the tax savings due to LIFO cost flow assumption and net income under both the assumptions LIFO and FIFO. e. Caterpillar might oppose a requirement to adopt IFRS by U.S. companies as under IFRS, LIFO cost flow assumption is prohibited and Caterpillar would not be able to take the related benefits

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.