Posted by keri on Wednesday, November 13, 2013 at 1:08am.
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 option:
a. Janine purchased 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 beginning inventory with the cost of the ending inventory. Since the question states that the cost of the beginning inventory was $150,000 and the cost of the ending inventory was $125,000, we can conclude that Janine purchased less inventory than was sold. Therefore, this statement 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 determine the effect of using the FIFO method, we need to understand how it values inventory. FIFO (First In, First Out) assumes that the items that were first purchased are the first ones sold. Since the cost of inventory is increasing, using the FIFO method would result in higher costs of goods sold (COGS) and lower net income. Therefore, this statement is false.
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 actual number of items. Hence, we cannot determine whether the volume has increased or not. Therefore, this statement is indeterminable.
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.
This statement is true. LIFO (Last In, First Out) assumes that the most recent items purchased are sold first. Since the cost of inventory is increasing, using the LIFO method would result in matching high-cost items with sales and lower COGS.
Based on the analysis above, the correct answer is:
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.