The 2014 Annual Report of Arrowhead Manufacturing Company Contained the Following

question 65

Essay

The 2014 annual report of Arrowhead Manufacturing Company contained the following notes to the company's financial statements:
Inventory Valuation
The company uses the last-in,first-out (LIFO)cost method of inventory valuation for most domestic manufacturing inventories.Other manufacturing inventories are valued at the lower of standard costs (which approximate average costs),average costs,or market.
Inventories

If inventories valued on the LIFO basis had been valued at standard or average costs,which approximate current costs,consolidated inventories would be higher than reported by $21.0 million and $19.6 million at December 31,2014,and 2013,respectively.
Inventories that are valued at the lower of standard costs (which approximate average costs),average costs,or market at December 31,2014 and 2013,were approximately $185.2 million and $125.7 million,respectively.
Required:
1.Why does Arrowhead use LIFO only for domestic inventories?
2.What would have been the effect on the Arrowhead 2014 net income if the company had consistently used standard or average costs to value its inventories over time (assume a 34% tax rate)?
3.What would be the effect on retained earnings as of December 31,2014,if Arrowhead had consistently used standard or averages to value its inventories over time?

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Definitions:

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Human Immunodeficiency Virus, a virus that attacks the immune system and can lead to AIDS if not treated.

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