Liquidation LIFO inventory at the year end and effect on pretax income.
"The company is engaged in the manufacture and sale of chemicals, plastic materials, agricultural and other specialized services" 10-k
|
The Dow Chemical Company and Subsidiaries
Consolidated Balance Sheets (In Part)
|
|
(In Millions) At December 31,
|
2004
|
2003
|
|
Assets
|
|
|
|
Current Assets
|
$3,108
|
$2,392
|
|
Cash and cash equivalents
|
84
|
42
|
|
Marketable securities and interest-bearing deposits
|
|
|
|
Accounts and notes receivable:
|
|
|
|
Trade (net of allowance for doubtful receivable-2004:
|
|
|
|
136;2003:$118)
|
4,753
|
3,574
|
|
Other
|
2,604
|
2,356
|
|
Inventories
|
4,957
|
4,050
|
|
Deferred income tax assets-current
|
384
|
698
|
|
Total current assets
|
$15,890
|
$13,11
|
Note D-Inventories
The following table provides a breakdown of inventories at December 31, 2004 and 2003:
|
Inventories at December 31
|
|
(In Millions)
|
2004
|
2003
|
|
Finished Goods
|
$2,989
|
$2,396
|
|
Work in Process
|
889
|
837
|
|
Raw Materials
|
605
|
373
|
|
Supplies
|
474
|
444
|
|
Total inventories
|
$4,957
|
$4,050
|
The reserves reducing inventories from the first-in, first-out ("FIFO") basis to the last-in, first-out ("LIFO") basis amounted to $807 million ar December 31,2004 and $330 million at December 31, 2003.
Inventories valued at LIFO basis, principally hydrocarbon and U.S. chemicals and plastics product inventories,represented 39 percent of the total inventories at December 31, 2004 and 38 percent of total inventories at December 31, 2003.
A reduction of certain inventories resulted in the liquidation of some quantities of LIFO inventory, increasing pretax income $154 million in 2004 and $70 million in 2003, and reducing pretax loss $71 million in 2002.
Questions
A. What is the inventory balance at December 31, 2004
B. What is the inventory balance at Decmber 31, 2004, without the reduction for LIFO reserve?
C.Why would the liquidation of some quantities of LIFO inventory increase pretax income in 2004 by $154 million?
D.Must all inventory be costed in the same way? Comment.