Question

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

Answer 1

c. jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory

Explanation:

First In First Out FIFO is a type of inventory system in accounting, it literally implies that the oldest purchase goes out first when you made a sale. The oldest purchase are charged based on cost of good sold. If price are rising, :

FIFO will yield a lower cost of good sold

FIFO will yield a higher net income

FIFO will yield higher tax liability

FIFO will yield a higher inventory

From the information given:

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.

What the statement implies is that:

jasper has apparently decreased the volume of items in his ending inventory as compared to the number of items in his beginning inventory