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	185	units	@	$	11.00	=	$	2,035
Jan.	10		Sales										145	units	@	$	20.00
Jan.	20		Purchase	100	units	@	$	10.00	=		1,000
Jan.	25		Sales										125	units	@	$	20.00
Jan.	30		Purchase	270	units	@	$	9.50	=		2,565
			Totals	555	units					$	5,600		270	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 285 units, where 270 are from the January 30 purchase, 5 are from the January 20 purchase, and 10 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 $1,700 and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

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

3. Does net income using weighted average fall between that using FIFO and LIFO?2. Which method yields the highest net income?

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

Answer 1

	Laker Company
		Specific Identification	Weighted - Average	FIFO	LIFO
(270 X $20)	Sales	$        5,400	$       5,400	$        5,400	$       5,400
Less:	Cost of goods sold	$        2,875	$       2,881	$        2,885	$       2,870
	Gross profit	$        2,525	$       2,519	$        2,515	$       2,530
Less:	Expenses	$        1,700	$       1,700	$        1,700	$       1,700
	Income before taxes	$            825	$           819	$           815	$           830
Less:	Income tax expense @40%	$            330	$           328	$           326	$           332
	Net Income	$            495	$           491	$           489	$           498
2	Specific Identification yeilds highest Net Income
3	Yes, Net Income from weighted average method falls between FIFO and LIFO
4	FIFO method will result in highest net income in case when inventory cost is rising
	Workings:
1		Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Specific Identification	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Jan-01	185	$       11.00	$        2,035	175	$       11.00	$       1,925	10	$    11.00	$              110
	Jan-20	100	$       10.00	$        1,000	95	$       10.00	$           950	5	$    10.00	$                50
	Jan-30	270	$         9.50	$        2,565	-	$         9.50	$              -	270	$       9.50	$          2,565
	Total	555		$        5,600	270		$       2,875	285		$          2,725
2		Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Weighted - Average	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Jan-01							185	$    11.00	$          2,035
	Jan-10				145	$       11.00	$       1,595	40	$    11.00	$              440
	Jan-20	100	$       10.00	$        1,000				40	$    11.00	$              440
								100	$    10.00	$          1,000
								140	$    10.29	1,440
	Jan-25				125	$       10.29	$       1,286	15	$    10.29	$              154
	Jan-30	270	$         9.50	$        2,565				15	$    10.29	$              154
								270	$       9.50	$          2,565
	Total	370		$        3,565	270		$       2,881	285	$       9.54	$          2,719
3		Cost of goods available for sale			Cost of goods sold			Ending Inventory
	FIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Jan-01							185	$    11.00	$          2,035
	Jan-10				145	$       11.00	$       1,595	40	$    11.00	$              440
	Jan-20	100	$       10.00	$        1,000				40	$    11.00	$              440
								100	$    10.00	$          1,000
	Jan-25				40	$       11.00	$           440	15	$    10.00	$              150
					85	$       10.00	$           850
	Jan-30	270	$         9.50	$        2,565				15	$    10.00	$              150
								270	$       9.50	$          2,565
	Total	370		$        3,565	270		$       2,885	285		$          2,715
4		Cost of goods available for sale			Cost of goods sold			Ending Inventory
	LIFO	# of units    (A)	Cost per unit	Cost of goods available for sale	# of units sold               (B)	Cost per unit	Cost of goods sold	# of units in ending inventory	Cost per unit	Ending Inventory
	Jan-01							185	$    11.00	$          2,035
	Jan-10				145	$       11.00	$       1,595	40	$    11.00	$              440
	Jan-20	100	$       10.00	$        1,000				40	$    11.00	$              440
								100	$    10.00	$          1,000
	Jan-25				100	$       10.00	$       1,000	15	$    11.00	$              165
					25	$       11.00	$           275
	Jan-30	270	$         9.50	$        2,565				15	$    11.00	$              165
								270	$       9.50	$          2,565
	Total	370		$        3,565	270		$       2,870	285		$          2,730