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Walgreens Accounting Policies

Walgreen Co's 2010 annual report includes the following in the note that summarizes its accounting policies:

Inventories are valued on a lower of last-in, first out (LIFO) cost or market basis. At August 31, 2010 and 2009, inventories would have been greater by $1,379 million and $1,239 million, respectively, if they had been valued on a lower of first-in, first out (FIFO) cost or market basis. Inventory includes product costs, inbound freight, warehousing costs and vendor allowances.

What inventory costing method does Walgreen Co. use?
What is the amount of the LIFO reserve at the end of each of the two years?
Explain the meaning of the increase or decrease in the LIFO reserve during the 2010. What does this tell you about inventory costs for the company? Are they rising or falling? Explain.

Solution Preview

What inventory costing method does Walgreen Co. use?
They use LIFO method. Lower of cost or market is a "test" to be sure that inventories are not over-valued (a form of conservatism) and is not a costing method.

What is the amount of the LIFO reserve at the end of each ...

Solution Summary

Your tutorial is a paragraph and a reference explains the two potential causes for increases and decreases in the LIFO reserve and how the reserve arises.

$2.19