The following information is from the December 31 of Japan-based Canon Inc. (in millions of yen) and U.S.-based competitor Eastman Kodak Company (in U.S. millions):
Additional information comes from the notes to the 1. Basis of presentation and significant accounting policies
Inventories are stated at the lower of cost or market value. Cost is determined principally by the average method for domestic inventories and principally by the first-in, first-out method for overseas inventories.
EASTMAN KODAK
Note 1. Summary of significant accounting policies
Inventories are stated at the lower of cost or market. The cost of all the Company’s inventories is deter- mined by either the first-in, first-out or average cost method, which approximates current cost
(a) What is the likely reason that Canon and Kodak use two different cost formulas to account for their inventories? In particular, what is the probable reason for Canon to be using different methods to account for its domestic and over- seas inventories?
(b) What does the statement “stated at the lower of cost and market value” in the notes to the mean?
(c) Calculate the inventory turnover and days in inventory ratios of the two companies for 2010. Comment on your findings.
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