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A Sports, a wholesaler that has been in business for two years, purchases his inventories from lous suppliers. During these two years, each purchase has been at a lower price than the press purchase. K2 uses the lower-of-(FIFO)-cost-or-market method to value its inventories. The prada cost of the inventories exceeds its replacement cost, but it is below the net realizaable value (al net realizable value less a normal profit margin is lower than replacement cost for the invent Required: a. What criteria should be used in determining costs to include in inventory? b. Why is the lower-of-cost-or-market rule used in valuing inventory? C. At what amount should K2 report its inventories on the balance sheet? Explain the application of the lower cost-or-market rule in this situation. T. What would be the effect on ending inventories and net income for the second year had 42 used the logs. (average)-cost-or-market inventory method instead of the lower-of-(FIFO)-cost-or-market inventory matter. Explain