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 statements are true, let's analyze each option:
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 beginning inventory with the cost of the ending inventory. If the cost of the beginning inventory is higher than the cost of the ending inventory, it means that Janise sold more inventory than she purchased. However, in this case, the cost of the beginning inventory ($150,000) is higher than the cost of the ending inventory ($125,000), indicating that Janise purchased less inventory than she sold. 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 answer this question, we must understand the difference between the FIFO (First-In-First-Out) and LIFO (Last-In-First-Out) methods of inventory valuation. FIFO assumes that the oldest inventory is sold first, while LIFO assumes that the newest inventory is sold first. In a situation where the cost of inventory is increasing, using LIFO would result in higher cost of goods sold and lower net income as it values the inventory using the most recent (and higher) costs. Therefore, if Janise switched to FIFO, she would have a higher net income. Hence, 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:
Based on the information provided, there is no direct evidence indicating whether the volume (number of items) in the ending inventory has increased or not. The cost of inventory is provided, but it doesn't specify the quantity or volume of the items. Therefore, we cannot determine whether statement c is true or false.
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, using LIFO in a situation where the cost of inventory is increasing would result in a higher cost of goods sold (COGS) as it values the inventory using the most recent (and higher) costs. Hence, statement d is false.
By analyzing the statements, we can conclude that the correct answer is e. none of the above.