Question: Grocery giant Kroger discloses inventory in the
Grocery giant Kroger discloses inventory in the following manner on the balance sheet itself (dollars in millions).
Rival grocer Albertsons' s, on the other hand, disclosed information about its LIFO and FIFO values in a footnote to its 2019 financial statements (dollars in millions).
Substantially all of the Company's inventories consist of finished goods valued at the lower of cost or market and net of vendor allowances. As of February 23, 2019 and February 24, 2018, approximately 85.9% and 86. 1 %, respectively, of the Company's inventories were valued under the last-in, first-out (LIFO) method. Replacement or current cost was higher than the carrying amount of inventories valued using LIFO by $125.1 million and $117.1 million as of February 23, 2019 and February 24, 2018, respectively. Cost for the remaining inventories, which represents perishable and fuel inventories, was determined using the most recent purchase cost, which approximates the first-in, first-out (FIFO) method.
INSTRUCTIONS:
a. For 2019, for which of the two companies is the difference between LIFO and FIFO larger as a percentage of total inventories?
b. Compute ending inventory as of the end of 2019 assuming the FIFO method for Kroger and Albertson's.
c. (Appendix A) Estimate the tax savings enjoyed by the two companies due to their use of LIFO instead of FIFO. (Assume a 20 percent tax rate.)
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