Response to the following problem:
JCPenney reports merchandise inventory in the Current Assets section of the balance sheet in its 2006 annual report as follows (amounts in millions of dollars):
2006 2005
Merchandise inventory
(net of LIFO reserves of $8 and $24) $3,400 $3210
Required:
1. What method does JCPenney use to report the value of its inventory?
2. What is the amount of the LIFO reserve at the end of each of the two years?
3. Explain the meaning of the increase or decrease in the LIFO reserve during 2006. What does this tell you about inventory costs for the company? Are they rising or falling? Explain your answer.