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Caterpillar, Inc., is one of the world's largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company's 2019 financial statements:

Caterpillar, Inc., is one of the world's largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company's 2019 financial statements:

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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P 8-8 Supplemental LIFO disclosures; CaterpillarLO8-4,LO8-6 Real World Financials Caterpillar, Inc., is one of the world's largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company's 2019 financial statements: C. Inventories ($ in millions) Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 60 percent and 65 percent of total inventories at December 31, 2019 and 2018, respectively. If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,086 million and $2,009 million higher than reported at December 31, 2019 and 2018, respectively. Required: 1. The company reported LIFO cost of goods sold of $36,630 million. Calculate the amount that would be reported for cost of goods sold had Caterpillar used the FIFO inventory method for all of its inventory during 2019. 2. How does the amount in requirement 1 affect income before taxes? 3. Why might the information contained in the disclosure note be useful to a financial analyst?
Transcribed Image Text:P 8-8 Supplemental LIFO disclosures; CaterpillarLO8-4,LO8-6 Real World Financials Caterpillar, Inc., is one of the world's largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company's 2019 financial statements: C. Inventories ($ in millions) Inventories are stated at the lower of cost or net realizable value. Cost is principally determined using the last-in, first-out (LIFO) method. The value of inventories on the LIFO basis represented about 60 percent and 65 percent of total inventories at December 31, 2019 and 2018, respectively. If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,086 million and $2,009 million higher than reported at December 31, 2019 and 2018, respectively. Required: 1. The company reported LIFO cost of goods sold of $36,630 million. Calculate the amount that would be reported for cost of goods sold had Caterpillar used the FIFO inventory method for all of its inventory during 2019. 2. How does the amount in requirement 1 affect income before taxes? 3. Why might the information contained in the disclosure note be useful to a financial analyst?
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