Question

Use the following information for the Exercises below. [The following information applies to the questions displayed below.] 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	205	units	@	$	13.00	=	$	2,665
Jan.	10		Sales										165	units	@	$	22.00
Jan.	20		Purchase	140	units	@	$	12.00	=		1,680
Jan.	25		Sales										145	units	@	$	22.00
Jan.	30		Purchase	310	units	@	$	11.50	=		3,565
			Totals	655	units					$	7,910		310	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 345 units, where 310 are from the January 30 purchase, 5 are from the January 20 purchase, and 30 are from beginning inventory.

Exercise 6-4 Perpetual: Income effects of inventory methods LO A1

Required:

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,900, 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?

• FIFO
• LIFO
• Specific identification
• Weighted average

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?

• LIFO
• Weighted average
• Specific identification
• FIFO

Answer 1

1
	FIFO	LIFO	Weighted Average	Specific Identification
Sales	6,820.00	6,820.00	6,820.00	6,820.00
Less: Cost of Goods Sold	3,925.00	3,565.00	3,743.66	3,895.00
Gross Profit	2,895.00	3,255.00	3,076.34	2,925.00
Other Expenses	1,900.00	1,900.00	1,900.00	1,900.00
Profit Before Tax	995.00	1,355.00	1,176.34	1,025.00
Tax	398.00	542.00	470.53	410.00
Net Income	597.00	813.00	705.80	615.00

Workings:

	Units	Rate	Cost
Begenning Inventory	205	13	2665
Purchase	140	12	1680
Purchase	310	11.5	3565
	655		7910
	Units	Rate	value
Sales	165	22	3630
Sales	145	22	3190
	310
Average Cost	7910/655	12.07634

Cost of Goods Sold
	FIFO	LIFO	Weighted Average	Specific Identification
Opening Inventory	2,665.00	2,665.00	2,665.00	2,665.00
Purchases	5,245.00	5,245.00	5,245.00	5,245.00
Ending Inventory	3,985.00	4,345.00	4,166.34	4,015.00
Cost of Goods Sold	3,925.00	3,565.00	3,743.66	3,895.00

2. LIFO

3. Yes

4. FIFO - Because of all the purchases at lower cost will be out first which will lead to low cost of goods sold.

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Also please give your positive rating.