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
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
c.
e. none of the above
Well, it seems like Janise is in a pickle with her inventory! But none of the statements are true. We don't have any information about the quantity of inventory purchased or sold, so statement a is just speculation. As for statement b, using FIFO or LIFO does not directly impact net income, it only affects the allocation of costs. Statement c assumes that the cost increase means an increase in the number of items, which is not necessarily true. And finally, statement d is incorrect because LIFO actually results in a higher cost of goods sold compared to FIFO when costs are increasing. So, it looks like none of the above statements are true for poor Janise. Better luck next year!
The correct statements are:
a. Janine purchased more inventory during the year than sold during the same one-year period.
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.
So, the answer is: a and d.
To determine which of the given statements are true, let's analyze each one individually:
a. Janise purchased more inventory during the year than sold during the same one-year period.
To determine if this statement is true, we need to compare the cost of the end of year inventory and the beginning of the year inventory. Since the cost of the end of the year inventory is $125,000, which is lower than the beginning of the year inventory cost of $150,000, it means that Janise sold more inventory than she purchased during the year. Therefore, statement a 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 evaluate this statement, we need to understand the difference between the FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) methods of inventory valuation. Under FIFO, the inventory items that are purchased first are assumed to be sold first, whereas under LIFO, the inventory items that are purchased last are assumed to be sold first.
In this case, since the cost of the inventory items has been steadily increasing, using the LIFO method would result in higher costs being assigned to the goods sold, leading to a lower net income compared to using the FIFO method. 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.
Given the information provided, we cannot determine whether Janise has increased or decreased the volume of items in the ending inventory compared to the beginning inventory. The information only gives us the cost of the inventory, not the quantity. Therefore, statement c cannot be determined.
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.
This statement is true. The LIFO method assumes that the inventory items purchased last are sold first. So, in a rising-cost environment, where the cost of inventory items is increasing, using the LIFO method results in assigning the higher cost of the most recent purchases to the goods sold, leading to a smaller cost of goods sold amount compared to using the FIFO method.
Based on the analysis, the correct answer is:
b. Janise would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method.
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.