eBook & Print Question 4 Partially correct Mark 7.50 out of 10.00 2 Ask your Instructor P Flag question Analyzing an Inventory Note Disclosure The inventory note from Deere & Company's recent 10-K follows. Inventories: A majority of inventory owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the "last-in, first-out" (LIFO) basis. Remaining inventories are generally valued at the lower of cost. on the "first-in, first-out" (FIFO) basis, or net realizable value. If all inventories had been valued on a FIFO basis, estimated inventories by major classification, in millions of dollars would have been as follows: $ millions Current Year Prior Year Raw materials and supplies $3.796 $2870 Work-in-process 1.319 842 Finished goods and parts 8.121 5.409 Total FIFO value 13.236 9.121 Less adjustment to LIFO value 2.783 2.484 Inventories $10,453 $6,637 This note reveals that not all of Deere's inventories are reported using the same inventory costing method (companies can use different inventory costing methods for different inventory pools). Note: Round all answers to the nearest dollar, if applicable. a. What amount does Deere report for inventories on its balance sheets, each year? $ millions Current Year Prior Year Inventories: $ 10.453 v $ 6.637 v b. What would Deere have reported as inventories on its balance sheets, each year had the company used FIFO inventory costing? $ millions Current Year Prior Year Inventories: $ 13.236 w $ 9.121 v C. As of the end of the current year, what effect has the use of LIFO inventory costing had on Deere's cumulative pretax income compared with the pretax income it would have reported had it used FIFO? Explain. $ millions Cumulative effect on pre-tax income: $ 2.783 Pretax income (until the end of the current year end) has been decreased * w by$ 2,783 million cumulatively since Deere adopted LIFO inventory costing (the amount of the LIFO reserve). Pretax income was |lower * * because inventory costs have been rising and Deere has matched current (higher) inventory costs against current selling prices thereby decreasing * * profits. d. As of the end of the current year, what were Deere's cumulative tax savings arising from the use of LIFO inventory costing? Assume an average (cumulative) tax rate of 22%. $ millions Cumulative tax savings from adopting LIFO: $ e. What effect has the use of LIFO inventory costing had on Deere's pretax income and tax expense for the current year only (assume a 21% income tax rate)? $ millions Current Year Current year effect on pretax income: $ x Current year effect on tax expense: $