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 determine which of the statements are true, let's analyze each option:
a. Jasper purchases more inventory during the year than sold during the same one-year period.
To determine whether Jasper purchased more inventory than sold, we need to compare the beginning and ending inventory values. Since the beginning inventory cost was $250,000 and the ending inventory cost is $200,000, the ending inventory is lower. Therefore, statement a 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 the effect on net income, we need to understand the differences between the LIFO (Last-In, First-Out) and FIFO (First-In, First-Out) methods. LIFO assumes that the most recent inventory purchases are the first ones sold, whereas FIFO assumes that the oldest inventory is sold first.
In this case, since the inventory costs are increasing, using LIFO would result in higher cost of goods sold (COGS) and lower ending inventory values compared to using FIFO. Higher COGS leads to lower net income. Therefore, statement b is false.
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 only provides information about the cost of inventory items, not the volume or quantity. So we cannot determine whether the volume of items decreased based on the given information. Therefore, statement c cannot be determined from 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 the FIFO than the LIFO.
As mentioned earlier, under FIFO, the oldest inventory is assumed to be sold first. Since the inventory costs are increasing, the older, lower-cost items would be sold first, resulting in a lower COGS compared to LIFO. Therefore, statement d is false.
Based on the analysis, none of the statements are true. Therefore, the correct answer is e. None of the above.
The correct statements are:
b. Jasper would have a higher net income if he used the LIFO method of inventory valuation instead of the FIFO method.
d. Since the cost of the store's inventory items is increasing, Jasper will have a greater cost of goods sold figure under the FIFO method than the LIFO method.