Late in the year, software City began carrying WordCrafter, a new word processing software program. At December 31, Software Citys perpetual inventory records included the following cost layers in its inventory of WordCrafter programs: Purchase Date Qty Unit Cost Total Cost Nov 14. 8, $400, $3,200 Dec 12. 20, 310, 6,200 Total available for sale at Dec 31. 28, $9,400(TC) b) Now assume that the current replacement cost of the WordCrafter programs is $405 each. A physical inventory finds only 25 of these programs on hand at December 31. 1. Prepare the journal entry to record the shrinkage loss assuming that Software City uses the FiFO flow assumption. 2. Prepare the journal entry to record the shrinkage loss assuming that Software city uses the LIFO flow assumption. 3. Which cost flow assumption (FIFO or LIFO) results in the lowest net income for the period? Would using this assumption really mean that the companys operation are less efficient? Explain