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	150	units	@	$	7.50	=	$	1,125
Jan.	10		Sales										110	units	@	$	16.50
Jan.	20		Purchase	80	units	@	$	6.50	=		520
Jan.	25		Sales										90	units	@	$	16.50
Jan.	30		Purchase	200	units	@	$	6.00	=		1,200
			Totals	430	units					$	2,845		200	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 230 units, where 200 are from the January 30 purchase, 5 are from the January 20 purchase, and 25 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 $1,350, 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?

• Specific identification

• Weighted average

• LIFO

• FIFO

3. Does net income using weighted average fall between that using FIFO and LIFO?

• Yes

• No

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

• FIFO

• LIFO

• Specific identification

• Weighted average

Answer 1

1. Comparative income statements for the month of January for Laker Company for the four inventory methods.

2. LIFO yields the highest net Income.

3. Yes net income using weighted average fall between that using FIFO and LIFO.

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