John Martinson, CFA, is an equity analyst with a large pension fund. His supervisor, Linda Packard, asks him to write a report on Karp Inc. Karp prepares its financial statements in accordance with U.S. GAAP. Packard is particularly interested in the effects of the company’s use of the LIFO method to account for its inventory. For this purpose, Martinson collects the financial data presented in Exhibits F and G.

Balance Sheet Information (US$ millions)

As of 31 December	2009	2008
Cash and cash equivalents	172	157
Accounts receivable	626	458
Inventories	620	539
Other current assets	125	65
Total current assets	1,543	1,219
Property and equipment, net	3,035	2,972
Total assets	4,578	4,191
Total current liabilities	1,495	1,395
Long-term debt	644	604
Total liabilities	2,139	1,999
Common stock and paid in capital	1,652	1,652
Retained earnings	787	540
Total shareholders equity	2,439	2,192
Total liabilities and shareholders equity	4,578	4,191

Income Statement Information (US$ millions)

For Years Ended 31 December	2009	2008
Sales	4,346	4,161
Cost of goods sold	2,211	2,147
Depreciation and amortization expense	139	119
Selling, general, and administrative expense	1,656	1,637
Interest expense	31	18
Income tax expense	62	48
Net income	247	192

Martinson finds the following information in the notes to the financial statements:

• The LIFO reserves as of 31 December 2009 and 2008 are $155 million and $117 million respectively; and
• The effective income tax rate applicable to Karp for 2009 and earlier periods is 20%.
• If Karp had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2009 would have been closest to:

• A. $465 million.

  B. $658 million.

  C. $775 million.