Decision Case 5-2: Reading and Interpreting Walgreen Co.s Inventory Note

Wal-green Co.'s 2010 annual report includes the following in the note that summarizes its accounting policies:

Inventories:

Inventories are valued on a lower of last-in, first-out (LIFO) cost or market basis. At August 31, 2010 and 2009, inventories would have been greater by $1,379 million and $1,239 million, respectively, if they had been valued on a lower of first-in, first-out (FIFO) cost or market basis. Inventory includes product costs, inbound freight, warehousing costs and vendor allowances.

Required:

1. What inventory costing method does Walgreen Co. use?

2. What is the amount of the LIFO reserve at the end of each of the two years?

3. Explain the meaning of the increase or decrease ub tge LIFO reserve during 2010. What does this tell you about inventory costs for the company? Are they rising or falling? Explain your answer.