Illinois Tool Works reports the following footnote in its 10-K report. The company reports its inventories using the LIFO inventory costing method. December 31
Analyzing an Inventory Footnote Disclosure
Illinois Tool Works reports the following footnote in its 10-K report. The company reports its inventories using the LIFO inventory costing method.
| December 31 (in millions) | 2018 | 2017 |
|---|---|---|
| Raw material | $523 | $465 |
| Work-in-process | 161 | 141 |
| Finished goods | 731 | 703 |
| LIFO reserve | (97) | (89) |
| Total inventories | $1,318 | $1,220 |
(a) What is the balance in inventories reported on ITW's 2018 balance sheet?
$Answer
(million)
(b) What would ITW's 2018 balance sheet have reported for inventories had the company used FIFO inventory costing?
$Answer
(million)
(c) What cumulative effect has ITW's choice of LIFO over FIFO had on its pretax income as of year end 2018?
(d) Assume the company has a 35% income tax rate for years prior to 2017 and a 21% rate thereafter. ITW’s LIFO reserve was $86 million at December 31, 2016. As of the 2018 year-end, how much has the company saved in taxes by choosing the LIFO over FIFO method for costing inventory?
Round your answer to one decimal place. Use a negative sign with answer, if ITW paid more in taxes by choosing LIFO.
$Answer
(million)
(e) What effect has the use of LIFO inventory costing had on ITW's pretax income and tax expense for 2018 only (assume a 21% income tax rate)?
Round answers to one decimal place, when applicable.
2018 pretax income: Answer
by $Answer
million.
2018 tax expense: Answer
by $Answer
million.
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