jasper owns a small retail store as a sole proprietor. the business records show that the cost of the stores inventory items has been steadily increasing. the cost of the end of the year inventory is 200,000 and the cost of the beginning of the year inventory was 250,000. jasper uses the fifo method of inventory valuation. Which of the following statements are true?
a. jasper purchases more inventory during the year than sold during the same one year period.
b. jasper would have a higher net income
if he used the lifo method of inventory valuation instead of the fifo method
c. jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory
d. since the cost of the stores inventory items is increasing, jasper will have a greater cost of goods sold figure under the fifo than the lifo.
e. none of the above
looks like (c) to me.
the most expensive items remain in inventory, so if his cost at year-end is going down, he must have less inventory.
To determine which of the statements are true, we need to understand the FIFO (First-In, First-Out) method of inventory valuation and its implications in this scenario.
FIFO assumes that the first items purchased are the first ones sold. Given the information provided, the cost of the end-of-year inventory is $200,000, and the cost of the beginning-of-year inventory was $250,000.
Now let's analyze each statement:
a. Jasper purchases more inventory during the year than sold during the same one-year period.
To verify this statement, we need to compare the cost of the purchases to the cost of sales during the year. Unfortunately, the question does not provide information about the purchases or sales, so we cannot determine if this statement is true or false based on the information given.
b. Jasper would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.
This statement is false. LIFO (Last-In, First-Out) assumes that the most recently purchased items are the first ones sold. In a scenario with increasing inventory costs, using LIFO would result in higher cost of goods sold (COGS) and lower net income compared to FIFO. Therefore, Jasper would have lower net income if he used the LIFO method instead.
c. Jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory.
The question states the cost of inventory, but it does not provide information about the volume/quantity of items. Therefore, we cannot determine if the volume of items has increased or decreased based on the given data. This statement cannot be determined.
d. Since the cost of the store's inventory items is increasing, Jasper will have a greater cost of goods sold figure under FIFO than LIFO.
This statement is true. Under FIFO, the older, lower-cost items are recorded as sold first, resulting in a lower COGS compared to LIFO. As the cost of inventory items is increasing, using FIFO would result in a higher COGS compared to LIFO.
e. None of the above.
Based on the explanations given above, the correct answer is (d) since it is the only statement that can be determined to be true based on the information provided.