Question

Required information

Use the following information for the Exercises below.

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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	145	units	@	$	7.00	=	$	1,015
Jan.	10		Sales										105	units	@	$	16.00
Jan.	20		Purchase	70	units	@	$	6.00	=		420
Jan.	25		Sales										85	units	@	$	16.00
Jan.	30		Purchase	190	units	@	$	5.50	=		1,045
			Totals	405	units					$	2,480		190	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 215 units, where 190 are from the January 30 purchase, 5 are from the January 20 purchase, and 20 are from beginning inventory.

rev: 03_14_2019_QC_CS-162819

Exercise 5-4 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 $1,300, 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?

• LIFO

• FIFO

• Weighted average

• 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?

• FIFO

• Specific identification

• Weighted average

• LIFO

Answer 1

Answer:

1

Working notes for the answer:

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2

Which method yields the highest net income?

Answer: LIFO

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3

Does net income using weighted average fall between that using FIFO and LIFO?

Answer: Yes

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4

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

Answer: FIFO