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 based on the given information:
a. Janise purchased more inventory during the year than sold during the same one-year period:
To determine whether Janise purchased more inventory than sold, we need to compare the cost of the end-of-year inventory with the beginning-of-year inventory. However, the LIFO (Last-In, First-Out) method does not provide information about the actual quantity of inventory. Therefore, we cannot conclude whether she purchased more inventory than sold based on the given information.
b. Janise would have a higher net income if she used the FIFO (First-In, First-Out) method of inventory valuation instead of the LIFO method:
The LIFO method assumes that the most recently purchased items are the first ones sold. Therefore, during a period of increasing costs, the LIFO method would allocate the higher costs to the cost of goods sold. As a result, using the LIFO method generally leads to a lower net income compared to the FIFO method during inflationary periods. Therefore, this statement 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 given information does not provide any details about the volume or quantity of items in the ending inventory compared to the beginning inventory. Therefore, we cannot conclude whether Janise increased the volume of items based on the given information.
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:
As mentioned earlier, the LIFO method assumes that the most recently purchased items are sold first. Since the cost of inventory has been steadily increasing, the LIFO method would allocate the higher costs to the cost of goods sold. Therefore, Janise would have a smaller cost of goods sold amount on a LIFO basis compared to a FIFO basis. Hence, this statement is true.
Based on the analysis, the correct statements are:
- Janise would have a higher net income if she used the FIFO method of inventory valuation instead of the LIFO method.
- 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.
Therefore, the answer is d.