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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	210	units	@	$	13.50	=	$	2,835
Jan.	10	Sales										160	units	@	$	22.50
Jan.	20	Purchase	150	units	@	$	12.50	=		1,875
Jan.	25	Sales										160	units	@	$	22.50
Jan.	30	Purchase	320	units	@	$	12.00	=		3,840
		Totals	680	units					$	8,550		320	units

For specific identification, ending inventory consists of 360 units, where 320 are from the January 30 purchase, 5 are from the January 20 purchase, and 35 are from beginning inventory.

Required:

1. Prepare comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,950, and that the applicable income tax rate is 40%.

2. Which method yields the highest net income?

3. Does net income using weighted average fall above, between, or below that using FIFO and LIFO?

4. If costs were rising instead of falling, which method would yield the highest net income?

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2
• Required 3
• Required 4

Prepare comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,950, and that the applicable income tax rate is 40%. (Round your average cost per unit to 2 decimal places.)

	LAKER COMPANY Income Statements For Month Ended January 31 Specific Weighted Identification Average FIFO LIFO Sales $7,200.00 $7,200.00 $7,200.00 $7,200.00 Cost of goods sold Gross profit $7,200.00 $7,200.00 $7,200.00 $7,200.00 Expenses Income before taxes $7,200.00 $7,200.00 $7,200.00 $7,200.00 Income tax expense Net income $7,200.00 $7,200.00 $7,200.00 $7,200.00

Answer 1

1. FIFO
Date	Particulars	Units	rate	Value	Units	rate	Value	Units	rate	Value	Units	rate	Value
		Opening Stock			Sales/Purchases			COGS			Closing Stock
1-Jan	Opening Stock	210	13.5	2835
10-Jan	Sales				160	22.5	3600	160	13.5	2,160	50	13.5	675
20-Jan	Purchase				150	12.5	1875				50	13.5	675
											150	12.5	1875
25-Jan	Sales				160	22.5	3600	50	13.5	675	40	12.5	500
								110	12.5	1,375
30-Jan	Purchase				320	12	3840				40	12.5	500
											320	12	3840
Total										4,210

2. LIFO
Date	Par.	Units	rate	Value	Units	rate	Value	Units	rate	Value	Units	rate	Value
		Opening Stock			Sales/Purchases			COGS			Closing Stock
1-Jan	Opening Stock	210	13.5	2835
10-Jan	Sales				160	22.5	3600	160	13.5	2,160	50	13.5	675
20-Jan	Purchase				150	12.5	1875				50	13.5	675
											150	12.5	1875
25-Jan	Sales				160	22.5	3600	150	12.5	1,875	40	13.5	540
								10	13.5	135
30-Jan	Purchase				320	12	3840				40	13.5	540
											320	12	3840
Total										4,170

3. WAM
Date	Particulars	Units	rate	Value	Units	rate	Value	Units	rate	Value	Units	rate	Value
		Opening Stock			Sales/Purchases			COGS			Closing Stock
1-Jan	Opening Stock	210	14	2,835
10-Jan	Sales				160	22.50	3,600	160	13.50	2,160	50	13.50	675
20-Jan	Purchase				150	12.50	1,875				200	12.75	2,550
											(150+50)	(2550/200)	(1875+675)
25-Jan	Sales				160	22.50	3,600	160	12.75	2,040	40	12.75	510
30-Jan	Purchase				320	12.00	3,840				360	12.08	4,350
											(320+40)	(4350/360)	(3840+510)
Total										4,200

4. Specific Identification Method
COGS		4,175

1. Income statement
For Jan 31
		Specific	WAM	FIFO	LIFO
		Identification
Sales		7,200	7,200	7,200	7,200
COGS		4,175	4,200	4,210	4,170
Gross Profit		3,025	3,000	2,990	3,030
Expenses		1,950	1,950	1,950	1,950
Income before Taxes		1,075	1,050	1,040	1,080
Income Tax (40%)		430	420	416	432
Net Income		645	630	624	648
2. LIFO methods- highest income
3. Net income from WAM is above - FIFO method, below -LIFO method
4. If cost were rising instead of falling, FIFO method yield the highest income