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, we need to understand the LIFO (last in, first out) method of inventory valuation and compare the beginning and ending inventory values.
Under LIFO method, it is assumed that the most recent purchases are the first ones to be sold, resulting in the oldest inventory items being left at the end of the year.
Let's evaluate each statement:
a. Janise purchased more inventory during the year than sold during the same one-year period.
To determine this, we need to compare the beginning and ending inventory values. In this case, the beginning inventory is $150,000 and the ending inventory is $125,000. Since the ending inventory is lower, it means that more inventory was sold than purchased. Therefore, statement a is false.
b. Janise would have a higher net income if she used the FIFO (first in, first out) method of inventory valuation instead of the LIFO method.
Whether Janise would have higher net income under FIFO or LIFO depends on the specific circumstances. Generally, if inventory costs are increasing, LIFO method results in higher cost of goods sold (COGS) and lower net income compared to FIFO. In this case, with inventory costs increasing, it is likely that LIFO method resulted in higher COGS and lower net income than FIFO. 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 question provides information only about the cost of inventory, not the number of items or their volume. Therefore, we cannot determine whether the volume of items has increased or decreased. Statement c is unknown.
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 earlier, LIFO method typically results in higher COGS when inventory costs are increasing. Therefore, statement d is false.
Based on our analysis, the correct answer is:
Statement b is true (Janise would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method).
Statements a, c, and d are false.
Therefore, the answer is "e. none of the above".