Chapter 6Inventories

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Learning Objectives

After studying this chapter, you should be able to:

1 Describe the steps in determining inventory quantities.

2 Explain the accounting for inventories and apply the inventory cost flow methods.

3 Explain the financial effects of the inventory cost flow assumptions.

4 Explain the lower-of-cost-or-net realizable value basis of accounting for inventories.

5 Indicate the effects of inventory errors on the financial statements.

6 Compute and interpret the inventory turnover ratio.

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Feature Story

“Where Is That Spare Bulldozer Blade?”

Let's talk inventory—big, bulldozer-size inventory. Komatsu Ltd. (JPN) is one of the world's largest manufacturers of giant construction and mining equipment. The company's name is actually somewhat ironic, since komatsu is Japanese for “small pine tree.” But, there is nothing small about what Komatsu does. It produces many types of earthmoving equipment: excavators, forestry equipment for hauling giant logs, forklifts, metal presses, and lots of other really big things. It is the second largest seller of heavy equipment in the world. And, as the chart on the next page shows, it sells this equipment in every region ...

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