Question

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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	235	units	@	$	16.00	=	$	3,760
Jan.	10	Sales										200	units	@	$	25.00
Jan.	20	Purchase	180	units	@	$	15.00	=		2,700
Jan.	25	Sales										190	units	@	$	25.00
Jan.	30	Purchase	390	units	@	$	14.50	=		5,655
		Totals	805	units					$	12,115		390	units

For specific identification, ending inventory consists of 415 units, where 390 are from the January 30 purchase, 5 are from the January 20 purchase, and 20 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 $2,200, 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?

Answer 1