(Adapted from Warren, Reeve & Duchac, 14th edition) 1. Why is it important to periodically take a physical inventory when using a perpetual inventory system? 2. Do the terms FIFO, LIFO, and weighted average refer to techniques used in determining quantities of the various classes of inventory on hand? Explain. 3. If inventory is being valued at cost and the price level is decreasing, which of the three methods of cesting - FIFO, LIFO, or weighted average cost- will yield: a. The highest inventory cost b. The lowest inventory cost c. The highest gross profit d. The lowest gross profit 4. Which of the three methods of inventory costing - FIFO, LIFO, or weighted average cost - will in general yield an inventory cost nearly approximating current replacement cost? 5. If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing - FIFO, LIFO, or weighted average cost will yield the lowest annual income tax expense? Explain. 6. Using the following data, how should the inventory be valued under lower of cost or market? Original Cost: $1,350; Estimated Selling Price: $1,475; Selling Expenses: $180. 7. The inventory at the end of the year was understated by $14,750. a. Did the error cause an overstatement or an understatement of the gross profit for the year? b. Which items on the balance sheet at the end of the year were overstated or understated as a result of the error? 8. Hutch Co. sold merchandise to Bibbins Company on May 31, FOB shipping point. If the merchandise is in transit on May 31, the end of the fiscal year, which company would report it in its financial statements? Explain. 9. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included?