Financial Accounting: In an Economic Context

BRIEF EXERCISES

REAL DATA

BE7-1

Inventory

In its 2008 annual report, Hewlett-Packard reported beginning inventory of $8.0 billion, ending inventory of $7.9 billion on the balance sheet, and cost of goods sold of $69.3 billion on the income statement. Compute the inventory purchases made by Hewlett-Packard during 2008.

REAL DATA

BE7-2

Inventory

The following information was taken from the footnotes in the 2008 annual report of Johnson & Johnson.

a. From information in the footnote alone, indicate whether Johnson & Johnson is a retailer, manufacturer, or service firm. Explain.

b. From information in the footnote alone, indicate whether Johnson & Johnson uses the LIFO or FIFO inventory cost flow assumption. Explain. (Hint: What disclosures are required under LIFO? under FIFO?)

REAL DATA

BE7-3

FIFO vs. LIFO

General Electric uses the LIFO inventory cost flow assumption, reporting inventories on its 2008 balance sheet of $13.7 billion and a LIFO reserve of approximately $706 million. What would be GE's 2008 inventory balance if it used the FIFO assumption instead? Why is the disclosure of the LIFO reserve useful to financial statement users?