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1. The company reported LIFO cost of goods sold of $31,049 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 2017. 2. Using the cost of goods sold calculated in requirement 1, how much higher (lower) would income before taxes be, if Caterpillar had used the FIFO inventory method for all of its inventory?

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Answer:

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1. Cost of goods sold = Beginning inventory + Purchase - Ending inventory

If FIFO method is used,then beginning and ending inventory will increase. Increase in beginning inventory will increase the cost of goods sold. Increase in ending inventory will decrease the cost of goods sold.

Cost of goods sold under FIFO = $31049 + $2139 - $1934 = $31,254

2. Cost of goods sold under LIFO = $31049

Cost of goods sold under FIFO = $31254

Increase in cost of goods sold = $31254 - $31049 = $205

Increase in cost of goods sold will decrease the income before taxes

Decrease in income before taxes = $205

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