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
To answer the question, let's analyze each statement:
a. Jasper purchases more inventory during the year than is sold during the same one-year period.
To determine if this statement is true, we need to compare the cost of the ending inventory to the cost of the beginning inventory. Since the cost of the ending inventory is lower than the cost of the beginning inventory ($200,000 < $250,000), this statement is false.
b. Jasper would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.
To determine if this statement is true, we need to understand the impact of the LIFO (Last-In, First-Out) and FIFO (First-In, First-Out) methods on net income. The LIFO method assumes that the most recently purchased items are sold first, while the FIFO method assumes that the oldest inventory items are sold first. In a period of increasing inventory costs (as mentioned in the question), the LIFO method results in higher cost of goods sold (COGS) because it uses the higher costs of the most recent purchases. As a result, net income is lower under LIFO compared to FIFO when inventory costs are increasing. Therefore, this statement is false.
c. Jasper has apparently decreased the volume of items in his ending inventory compared to the number of items in his beginning inventory.
The number of items in the inventory is not mentioned in the question. Therefore, we cannot determine whether this statement is true or false based on the given information.
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.
As mentioned earlier, the FIFO method assumes that the oldest inventory is sold first. In a period of increasing inventory costs, using FIFO would result in lower COGS compared to LIFO because the older, lower-cost items are used in the calculation. Therefore, this statement is false.
Based on the analysis above, the correct answer is e. None of the above.