Question

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,400, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

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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	155	units	@	$	8.00	=	$	1,240
Jan.	10		Sales										115	units	@	$	17.00
Jan.	20		Purchase	90	units	@	$	7.00	=		630
Jan.	25		Sales										95	units	@	$	17.00
Jan.	30		Purchase	210	units	@	$	6.50	=		1,365
			Totals	455	units					$	3,235		210	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 245 units, where 210 are from the January 30 purchase, 5 are from the January 20 purchase, and 30 are from beginning inventory.

Answer 1

Solution:

Computation of COGS and ending inventory - Specific identification
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	155	$8.00	$1,240	125	$8.00	$1,000.00	30	$8.00	$240.00
Purchases:
20-Jan	90	$7.00	$630	85	$7.00	$595.00	5	$7.00	$35.00
30-Jan	210	$6.50	$1,365	0	$6.50	$0.00	210	$6.50	$1,365.00
Total	455		$3,235	210		$1,595.00	245		$1,640.00

Computation of ending inventory COGS under Weighted Average Cost - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	155	$8.00	$1,240	0	$0.00	$0	0	$0.00	$0	155	$8.00	$1,240
10-Jan	155	$8.00	$1,240	0	$0.00	$0	115	$8.00	$920	40	$8.00	$320
20-Jan	40	$8.00	$320	90	$7.00	$630	0	$0.00	$0	130	$7.31	$950
25-Jan	130	$7.31	$950	0	$0.00	$0	95	$7.31	$694	35	$7.31	$256
25-Mar	35	$7.31	$256	210	$6.50	$1,365	0	$0.00	$0	245	$6.62	$1,621
Total							210		$1,614	245		$1,621

Computation of ending inventory COGS under FIFO - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	155	$8.00	$1,240.00	0	$0.00	$0.00	0	$0.00	$0.00	155	$8.00	$1,240.00
10-Jan	155	$8.00	$1,240.00	0	$0.00	$0.00	115	$8.00	$920.00	40	$8.00	$320.00
20-Jan	40	$8.00	$320.00	90	$7.00	$630.00	0	$0.00	$0.00	40	$8.00	$320.00
										90	$7.00	$630.00
25-Jan	40	$8.00	$320.00	0	$0.00	$0.00	40	$8.00	$320.00	35	$7.00	$245.00
	90	$7.00	$630.00				55	$7.00	$385.00
30-Jan	35	$7.00	$245.00	210	$6.50	$1,365.00	0	$0.00	$0.00	35	$7.00	$245.00
										210	$6.50	$1,365.00
Total							210		$1,625.00	245		$1,610.00

Computation of ending inventory COGS under LIFO - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	155	$8.00	$1,240.00	0	$0.00	$0.00	0	$0.00	$0.00	155	$8.00	$1,240.00
10-Jan	155	$8.00	$1,240.00	0	$0.00	$0.00	115	$8.00	$920.00	40	$8.00	$320.00
20-Jan	40	$8.00	$320.00	90	$7.00	$630.00	0	$0.00	$0.00	40	$8.00	$320.00
										90	$7.00	$630.00
25-Jan	40	$8.00	$320.00	0	$0.00	$0.00	90	$7.00	$630.00	35	$8.00	$280.00
	90	$7.00	$630.00				5	$8.00	$40.00
30-Jan	35	$8.00	$280.00	210	$6.50	$1,365.00	0	$0.00	$0.00	35	$8.00	$280.00
										210	$6.50	$1,365.00
Total							210		$1,590.00	245		$1,645.00

Income Statement - Laker Company
Particulars	Specific identification	Weighted Average	FIFO	LIFO
Sales	$3,570.00	$3,570.00	$3,570.00	$3,570.00
Cost of goods sold	$1,595.00	$1,614.00	$1,625.00	$1,590.00
Gross Profit (Sales - COGS)	$1,975.00	$1,956.00	$1,945.00	$1,980.00
Expenses	$1,400.00	$1,400.00	$1,400.00	$1,400.00
Income before taxes	$575.00	$556.00	$545.00	$580.00
Income tax expense (40%)	$230.00	$222.40	$218.00	$232.00
Net Income	$345.00	$333.60	$327.00	$348.00