Laker Company reported the following January purchases and sales data for its on

Question

Laker Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Units sold at Retail Jan. 1 Beginning inventory 225 units @ $ 15.00 = $ 3,375 Jan. 10 Sales 175 units @ $ 24.00 Jan. 20 Purchase 180 units @ $ 14.00 = 2,520 Jan. 25 Sales 210 units @ $ 24.00 Jan. 30 Purchase 350 units @ $ 13.50 = 4,725 Totals 755 units $ 10,620 385 units ________________________________________ The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 370 units, where 350 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory. Required: 1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,100, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.) 2. Which method yields the highest net income? • FIFO • Weighted average • Specific identification • LIFO 3. Does net income using weighted average fall between that using FIFO and LIFO? • No • Yes 4. If costs were rising instead of falling, which method would yield the highest net income? • Specific identification • Weighted average • FIFO • LIFO

Explanation / Answer

specific Weighted Identification Average FIFO LIFO Sales 9240 9240 9240 9240 Cost of goods sold 5600 5415 5615 5595 Gross profit 3640 3825 3625 3645 Expenses 2100 2100 2100 2100 Income before taxes 1540 1725 1525 1545 Tax expenses 616 689.8013245 610 618 Net income 924 1035 915 927 Specific identification Units Cost per unit Total Cost of goods sold Beginning inventory 210 15 3150 Jan 20 purchase 175 14 2450 385 5600 FIFO Units Cost per unit Total Cost of goods sold Beginning inventory 225 15 3375 Jan 20 purchase 160 14 2240 385 5615 LIFO Units Cost per unit Total Cost of goods sold Beginning inventory 205 15 3075 Jan 20 purchase 180 14 2520 385 5595 Weighted average Cost per unit (10620/755*385) 5415 2 Highest net income Weighted average method 3 No it is more than LIFO and FIFO 4 FIFO method yield more income if cost is rising

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