Janise is a sole proprietor owning a small specialty store. the business records show that the cost of the stores individual inventory items have been steadily increasing. the cost of the end of the year inventory is 125,000 and the cost of the beginning of the year inventory was 150,000. Janis uses the lifo method of inventory valuation. which of the following statements are true?
a. Janine purchased more inventory during the year than sold during the same one year period
b. Janise would have a higher net income if she used the fifo method of inventory valuation instead of the lifo method
c Janise has apparently increased the volume of the items in her ending inventory as compared to the number of items in her beginning inventory
d. since the cost of the store inventory items is increasing Janine will have a smaller cost of goods sold amount on a lifo basis than on a fifo basis
e. none of the above
To determine which of the statements are true, let's analyze each one:
a. Janise purchased more inventory during the year than sold during the same one-year period.
To determine if this statement is true, we need to compare the beginning and end of year inventory costs. In this case, the cost of the beginning inventory was $150,000, and the cost of the end of year inventory was $125,000. Since the end of year inventory cost is less than the beginning inventory cost, it means Janise sold more inventory than she purchased during the year. Therefore, statement a is false.
b. Janise would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method.
To evaluate this statement, we need to understand the LIFO and FIFO methods. LIFO (Last-In, First-Out) assumes that the most recent inventory items purchased are the first to be sold. FIFO (First-In, First-Out), on the other hand, assumes that the oldest inventory items are sold first. Given that the cost of the inventory items has been steadily increasing, using LIFO would result in higher costs attributed to the goods sold. This, in turn, would lead to lower net income compared to FIFO, as the older, lower-cost items would be attributed to the goods sold. Therefore, statement b is true.
c. Janise has apparently increased the volume of the items in her ending inventory as compared to the number of items in her beginning inventory.
The statement lacks enough information to determine its accuracy. The cost of the inventory is provided, but the volume or quantity of items is not mentioned. Without information on the number of items, we cannot determine if Janise increased or decreased the volume of her inventory. Therefore, statement c is inconclusive.
d. Since the cost of the store inventory items is increasing, Janise will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis.
As mentioned in question b, with LIFO, the assumption is that the most recent inventory items are sold first. Given that the cost of the inventory items has been increasing, the LIFO method would attribute the higher-cost items to the goods sold, resulting in a higher cost of goods sold compared to FIFO. Therefore, statement d is false.
Based on the above analysis:
- Statement a is false.
- Statement b is true.
- Statement c is inconclusive.
- Statement d is false.
Therefore, the correct answer is e. none of the above.