Janine is a sole proprietor owning a small specialty store. The business records show that the cost of the store's individual inventory items has 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. Janine uses the LIFO method of inventory valuation. Which of the following statements is true?

Question

Quizplus · Accepted Answer

Given the increasing cost of inventory items, using FIFO would result in older, cheaper inventory costs being accounted for in the cost of goods sold, leaving the more expensive, recent purchases in inventory. This would lead to a lower cost of goods sold and, consequently, a higher net income compared to LIFO, where the more expensive, recent purchases are sold first, increasing the cost of goods sold and reducing net income.

Janine Is a Sole Proprietor Owning a Small Specialty Store