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	385	units	@	$	13.00	=		5,005
		Totals	790	units					$	10,900		385	units

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 average cost per unit to 2 decimal places.)

FORMAT THE CHART PROPERLY !!

2. Which method yields the highest net income?
  

• FIFO

• LIFO

• Weighted average

• Specific identification

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?

• FIFO

• Specific identification

• LIFO

• Weighted average

Answer 1

1.

Income statement
	FIFO	LIFO	WAM	Specific identification method
Sales Value	$           9,240	$           9,240	$           9,240	$          9,240
COGS	$           5,615	$           5,595	$ 5,313	$          5,615
Gross profit	$           3,625	$           3,645	$ 3,297	$          3,625
Expenses	$           2,100	$           2,100	$           2,100	$          2,100
Net income before tax	$           1,525	$           1,545	$           1,827	$          1,525
Less Tax	$              610	$              618	$ 731	$             610
Net income after tax	$              915	$              927	$           1,096	$             915

Working;

FIFO
Particulars	Units	p.u cost	Total cost
Jan-01	225.00	$              15.00	$         3,375.00
Jan-10	(175.00)	$              15.00	$       (2,625.00)
Jan-20	180.00	$              14.00	$         2,520.00
Jan-25	(50.00)	$              15.00	$          (750.00)
	(160.00)	$              14.00	$       (2,240.00)
Jan-30	385.00	$              13.00	$         5,005.00
Feb Closing inventory	20.00	$              14.00	$            280.00
	385.00	$              13.00	$        5,005.00
COGS	$        5,615.00
Closing stock	$        5,285.00

LIFO
Particulars	Units	p.u cost	Total cost
Jan-01	225.00	$   15.00	$    3,375.00
Jan-10	(175.00)	$   15.00	$   (2,625.00)
Jan-20	180.00	$   14.00	$    2,520.00
Jan-25	(180.00)	$   14.00	$   (2,520.00)
	(30.00)	$   15.00	$      (450.00)
Jan-30	385.00	$   13.00	$    5,005.00
Feb Closing inventory	20.00	15.00	300.00
	385.00	13.00	5,005.00
COGS	5,595.00
Closing stock	5,305.00

Weighted average method
Particulars	Units	p.u cost	Total cost
Jan-01	225	$          15.00	$         3,375
Jan-20	180	$          14.00	$         2,520
Jan-30	385	$          13.00	$         5,005
Total	790	13.80	$      10,900
COGS	385	13.80	$         5,313
Closing stock	405	13.80	$         5,589

Specific identification method
Particulars	Units	p.u cost	Total cost
Jan-01	225.00	$           15.00	$     3,375.00
Jan-10	(175.00)	$           15.00	$    (2,625.00)
Jan-20	180.00	$           14.00	$     2,520.00
Jan-25	(50.00)	$           15.00	$       (750.00)
	(160.00)	$           14.00	$    (2,240.00)
Jan-30	385.00	$           13.00	$     5,005.00
Feb Closing inventory	20.00	$           14.00	$         280.00
	385.00	$           13.00	$     5,005.00
COGS	$     5,615.00
Closing stock	$     5,285.00

2. Weighted Average Method yields highest net income with $1,096.

3.No, Net income using WAM doesn't lie between net income using FIFO and LIFO.

4.In the period of rising prices FIFO would earn highest income.