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, we need to understand the LIFO method of inventory valuation and analyze the given information.
LIFO stands for "Last In, First Out." Under this method, the cost of the most recent inventory purchases is matched with the cost of goods sold first, while the older inventory costs are moved to the ending inventory.
Let's go through each statement and evaluate its validity:
a. Janise purchased more inventory during the year than sold during the same one-year period.
To answer this question, we need to compare the cost of the ending inventory to the cost of the beginning inventory. Since the cost of the end of the year inventory is $125,000, and the cost of the beginning of the year inventory is $150,000, it suggests that Janise sold more inventory than was purchased during the year. Hence, 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.
The FIFO method (First In, First Out) assumes that the earliest acquired inventory is sold first. Since the cost of inventory has been increasing, using the FIFO method would mean that the cost of goods sold (COGS) would be lower compared to the LIFO method since the older, less expensive inventory would be matched with sales first. Consequently, the net income would be higher under FIFO. 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.
The information provided does not give any indication regarding the volume or quantity of items in the inventory. It only relates to the cost of the inventory, specifically in dollars. Therefore, statement c cannot be determined from the information provided.
d. Since the cost of the store's inventory items is increasing, Janise will have a smaller cost of goods sold amount on a LIFO basis than on a FIFO basis.
As mentioned earlier, under LIFO, the most recent inventory costs are matched with the cost of goods sold first. Since the cost of inventory has been increasing, using LIFO would result in higher costs of goods sold compared to FIFO, where the cheaper inventory is matched with sales. Consequently, the cost of goods sold amount will be smaller under FIFO when compared to LIFO. Thus, statement d is true.
Based on the analysis, the statements that are true are b and d. Therefore, the correct answer is (b) and (d).