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	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	350	units	@	$	13.50	=		4,725
			Totals	755	units					$	10,620		385	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 370 units, where 350 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 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 $2,100 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 0 0 0 0 Expenses 2,100 2,100 2,100 2,100 Income before taxes (2,100) (2,100) (2,100) (2,100) Income tax expense Net income $(2,100) $(2,100) $(2,100) $(2,100)

2. Which method yields the highest net income?

• LIFO

• Weighted average

• FIFO

• 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?

• Specific identification

• FIFO

• Weighted average

• LIFO

Answer 1

FIFO LIFO Requirement 1 | Comparative Income Statements Specific Weighted Particulars Identification Average Sales $ 9,240 $ 9,240$ Cost of Goods Sold 5,600 $ 5,611 $ Gross Profit 3,640 $ 3,629 $ Operating Expenses 2,100 $ 2,100 $ Income before Taxes $ 1,540 $ 1,529 $ Income Tax Expense 616 $ 612 $ Net Income $ 924 $ 918$ 9,240 $ 5,615 $ 3,625 $ 2,100 $ 1,525 $ 610$ 915 $ 9,240 5,595 3,645 2,100 1,545 618 927 Requirement 2 LIFO Method Requirement 3 Yes Requirement 4 FIFO Method

Working Note 1 | Specific Identification Method Goods Purchased Date Unit Activity Units Cost Jan. 1 Beginning Inventory 225 $ 15.00 Jan. 20 Purchase 180 $ 14.00 Jan. 30 Purchase 350 $ 13.50 755 Cost of goods sold Units Unit Sold COGS Cost 210 $ 15.00$ 3,150 175 $ 14.00 $ $ 13.50 $ 385 $ 5,600 Inventory Balance Ending Cost per Ending Units Unit Cost 15 $ 15.00 $ 5 $ 14.00 $ 70 350 $ 13.50 $ 4,725 370 $ 5,020 225 2,450

Working Note 2 | Ending Inventory, COGS - Weighted Average Cost Goods Purchased Cost of goods sold Date Units Price Total Units Price Total Inventory Balance Units Price Total Jan. 1 225 $ 15.00 $ 3,375 Jan. 10 175 $ 15.00 $ 2,625 50 $ 15.00 $ 750 Jan. 20 180 $ 14.00 $ 2,520 50 $ 15.00 $ 180 $ 14.00 $ 230 $ 14.22 $ 750 2,520 3,270 Jan. 25 210 $ 14.22 $ 2,986 20 $ 14.22 $ 284 Jan. 30 350 $ 13.50 $ 4,725 20 $ 14.22 $ 350 $ 13.50 $ 370 $ 13.54 $ 284 4,725 5,009 Total 530 7,245 385 5,611 370 5,009

Working Note 3 | Ending Inventory, COGS - FIFO Under FIFO Method, the goods which are brought first are sold first. Goods Purchased Cost of goods sold Date Units Total Units Price Total Jan. 1 Price Inventory Balance Units Price Total 225 $ 15.00 $ 3,375 Jan. 10 175 $ 15.00 $ 2,625 50 $ 15.00 $ 750 Jan. 20 180 $ 14.00 $ 2,520 50 $ 15.00 $ 180 $ 14.00 $ 750 2,520 Jan. 25 20 $ 14.00 $ 280 50 $ 15.00$ 750 160 $ 14.00 $ 2,240 Jan. 30 350 $ 13.50 $ 4,725 20 $ 14.00 $ 350 $ 13.50 $ 280 4,725 Total 530 7,245 385 5,615 370 5,005 Working Note 4 Ending Inventory, COGS - LIFO Under LIFO Method, the goods which are brought last are sold first. Goods Purchased Cost of goods sold Date Units Price Total Units Price Total Jan. 1 Ending Inventory Units Price Total 225 $ 15.00 $ 3,375 Jan. 10 175 $ 15.00 $ 2,625 50 $ 15.00 $ 750 Jan. 20 180 $ 14.00 $ 2,520 50 $ 15.00 $ 180 $ 14.00 $ 750 2,520 Jan. 25 20 $ 15.00 $ 300 30 180 $ 15.00 $ 450 $ 14.00 $ 2,520 Jan. 30 350 $ 13.50 $ 4,725 20 350 $ 15.00 $ $ 13.50 $ 300 4,725 Total 530 7,245 385 5,595 370 5,025