General Electric Company
Edited Inventory Note
(millions of dollars)
2011 2010
Raw materials and work in process $ 4,894 $ 4,708
Finished goods 4,379 3,951
Unbilled shipments 372 312
9,645 8,972
Less revaluation to LIFO (606) (676)
$ 9,039 $ 8,295
LIFO revaluations decreased $70 million in 2011, compared with decreases
of $169 million in 2010 and $82 million in 2009. Included in these changes
were decreases of $21 million, $8 million and $6 million in 2011, 2010 and
2009, respectively that resulted from lower LIFO inventory levels. There
were net cost decreases in each of the last three years. GEs earnings before
income taxes were $18.891 billion in 2011. Assume a 35% marginal tax rate.
Requirements:
1. What are the total cumulative tax savings as of December 31, 2011 that
GE has realized as a result of using the LIFO inventory method?
2. What would GEs pre-tax earnings have been in 2011 if it had been using
FIFO?
3. What December 31, 2011 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 2011 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. (Hint: Reconcile the change in the LIFO reserve for 2011.)
Beginning Inventory LIFO
Plus:
Purchases
Available for Sale LIFO
Less:
Ending Inventory LIFO
COGS LIFO
+ Beginning LIFO Reserve
Less:
+ Ending LIFO Reserve
+ Decrease in LIFO Reserve
or
– Increase in LIFO Reserve
= Beginning Inventory FIFO
Plus:
Purchases
Available for Sale FIFO
Less:
= Ending Inventory FIFO
= COGS FIFO
Inventory LIFO + LIFO Reserve = Inventory FIFO
Beginning LIFO Reserve – Ending LIFO Reserve = LIFO Reserve
When the LIFO reserve amount decreases,
COGS LIFO + Decrease in LIFO Reserve = COGS FIFO
When the LIFO reserve amount increases,
COGS LIFO – Increase in LIFO Reserve = COGS FIFO
