1. The introduction to this chapter suggests that the chapter explores the answers to some questions about inventory. Did you get the answers to those questions? Specifically, a. why does inventory need to be counted? b. what would happen if the count was done incorrectly? c. what do the terms FIFO and LIFO have to do with inventory? 2. How are the financial statements of a manufacturer different from those of a merchan- diser with respect to inventory? 3. What is a cost-flow assumption? Why is a cost-flow assumption necessary in accounting for inventory? 4. If a company had two units that cost $1 each in its beginning inventory and purchased two more units for $2 each, what would be the cost of goods sold associated with a sale of three units under each of the following assumptions? a. FIFO b. LIFO C. Average cost 5. If a company had two units that cost $1 each in its beginning inventory and purchased two more units for $2 each, what would be the gross profit reported on the income state- ment under each of the following assumptions if three units were sold for $3 each? a. FIFO b. LIFO C. Average cost 6. In a period of rising inventory costs, which cost-flow assumption would produce the high- est net income? Why? 7. Let's say that two companies, identical in every way except that one uses FIFO and one uses LIFO, went into a bank on the same day to get a loan in order to deal with the rising cost of acquiring inventory. Despite the fact that they both engaged in the same transac- tions at the same dollar values, one company reported higher net income and higher total assets on the financial statements. Which one was it? If the banker made the decision based on the company that would have higher cash flow associated with the inventory costing method choice, which company would have received the loan? 8. Describe some business and economic conditions that might make the lower-of-cost-or- market rule more likely to result in a write-down of inventory. 9. Under which of the inventory methods, periodic or perpetual, would a company be better equipped to detect inventory shrinkage? Why? 10. If a company is having a hard time selling its products, even at discounted prices, com- pared with last year, would this year's inventory turnover rate be higher or lower than last year's rate? What about the gross profit rate