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 verify this statement, we need to compare the cost of the beginning inventory with the cost of the end of the year inventory. In this case, the cost of the beginning inventory was $250,000, and the cost of the end of the year inventory was $200,000. Since the cost of the beginning inventory is higher than the cost of the end of the year inventory, it means that Jasper sold more inventory than he purchased during the year. 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 whether this statement is true, we need to understand the impact of using different inventory valuation methods on net income. FIFO (First-In, First-Out) assumes that the oldest inventory is sold first, while LIFO (Last-In, First-Out) assumes that the newest inventory is sold first. In a period of rising prices, like in this scenario where the cost of inventory is increasing, LIFO will result in higher cost of goods sold (COGS) and lower net income compared to FIFO. 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 statement talks about the volume of items in inventory, which is not directly mentioned in the information provided. We only have information about the cost of inventory, not the quantity or volume of items. Therefore, we cannot determine whether statement c is true or false.
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, in a period of rising prices, FIFO will result in lower COGS compared to LIFO. This is because FIFO assumes that the oldest inventory is sold first, so the cost of goods sold will reflect the lower cost of the beginning inventory. Therefore, statement d is false.
Based on our analysis, the only true statement is e. (none of the above), as none of the statements a, b, c, and d are correct.