1. If costs aredeclining, will the LIFO or FIFO method of inventory valuation yield thelower cost of goods sold? Why?
2. Can a company change its inventory method each accounting period? What accounting principle dictates this?
3. What does the full-disclosure principle prescribe if a company changes from one acceptable accounting method to another?
4. Explain the following statement: "Inventory errors correct themselves." If inventory errors are said to correct themselves, why are accounting users concerned when such errors are made?
5. Does a company that uses the perpetual inventory system have to still doinventory physical countsat the end of the fiscal period? Why?
6. What factors contribute to (or cause)inventory shrinkage?