Why might an equity investor insist that a manager be paid a bonus expressed as a per¬ centage of income? Suppose that Elmer Smith is a manager of a company in its first year of operations who will be paid a bonus at year end that is equal to 1 percent of the company’s net income for that year. The bonus contract states that net income for the purposes of the bonus must be audited and measured in conformance with generally accepted accounting principles. Suppose that either of two accounting methods for reporting inventory values are allowed under generally accepted accounting principles. One of the methods, FIFO, gives rise to net income equal to $100,000. The other method, LIFO, results in a $70,000 net income. Based on the bonus contract, which inventory method would Elmer be likely to choose? What other considerations might Elmer make in the choice of inventory accounting methods?