2. The following noteappeared in the 2018 annual report of Roca Company:
Inventories
| | | | | | | |
| Inventories (in millions) at December 31 consisted of: | 2018 | 2017 |
| | | | | | | |
| | Finished goods | | | $ 1,078.3 | $ 926.7 |
| | Raw materials and work-in-process | 716.2 | 684.7 |
| | Supplies | | | | 78.0 | 65.6 |
| | Total (approximates current cost) | | $ 1,872.5 | $ 1,677.0 |
| | Reduction to LIFO cost | | – | 16.1 |
| | | | | | $ 1,872.5 | $ 1,660.9 |
Inventories valued at LIFO comprised approximately 44% and 42%of inventories at December 31, 2018 and 2017, respectively.
2-1. | What basis do you believe Roca uses to account for itsinventories internally? WHY? |
2-2. | Express your opinion as to why Roca reduces its inventories toLIFO cost. |
2-3. | If Roca did not adjust its inventories to LIFO cost, what wouldbe the impact on Roca’s |
| a. | Net income before tax for 2017? |
| b. | Retained earnings as of January 1, 2018 (assuming a 34% taxrate)? |
