General Electric Company reports the following in its footnote for inventory in
ID: 2500508 • Letter: G
Question
General Electric Company reports the following in its footnote for inventory in its 2012 annual report. General Electric reports it inventories using the LIFO inventory method. What is the balance for inventories that GE reports in its 2012 Balance Sheet? What mould GE's 2012 Balance Sheet haw reported 'or inventories if GE had used FIFO. Since GE adopted LIFO, how much less pretax income had GE reported as of year-end 2012. Assume that GE has a 35% tax rate. As of the 2012 year-end, how much has GE saved in taxes by choosing LIFO over FIFO for costing its inventory. What effect has he use of LIFO for inventory costing had on GE's tax expense for 2012 only (assume a 35% tax rate)?Explanation / Answer
a)
Balance for Inventory that GE report in 2012 Balance Sheet = $ 15,295
b)
IF GE had used FIFO,
Inventory = $ 15,693
c)
Less Pretax Income had GE reported as of year end 2012 = Inventory as per FIFO - inventory as per LIFO
Less Pretax Income had GE reported as of year end 2012 = 15693 - 15295
Less Pretax Income had GE reported as of year end 2012 = 398
d)
GE saved in taxes by choosing LIFO over FIFO = 398*35%
GE saved in taxes by choosing LIFO over FIFO = 139.30 Million
e)
The effect has the use of LIFO inventory costing had on GE's pretax income (Increase)= (450-398)
The effect has the use of LIFO inventory costing had on GE's pretax income(Increase) = $ 52 Million
Effect on Tax expense for 2012 would increase by = 35%*52
Effect on Tax expense for 2012 would increase by = $ 18.2 Million
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