Question

Required information 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 220 units @ $ 14.50 = $ 3,190 Jan. 10 Sales 170 units @ $ 23.50 Jan. 20 Purchase 170 units @ $ 13.50 = 2,295 Jan. 25 Sales 200 units @ $ 23.50 Jan. 30 Purchase 340 units @ $ 13.00 = 4,420 Totals 730 units $ 9,905 370 units The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 360 units, where 340 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 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 $2,050, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)

Answer 1

A	Specific identification:
		Available for sale				Cost of goods sold			Ending inventory
	Purchase date	Activity	Units	Rate	Cost	Units	Rate	Cost	Units	Rate	Cost
	1-Jan	Beginning inventory	220	$14.50	$3,190	205	$14.50	$2,973	15	$14.50	$218
	20-Jan	Purchases	170	$13.50	$2,295	165	$13.50	$2,228	5	$13.50	$68
	30-Jan	Purchases	340	$13.00	$4,420	0	$13.00	$0	340	$13.00	$4,420
	Total				$9,905	Cost of goods sold		$5,200	Ending inventory		$4,705
	Sold units = No. of units available on particular date - Ending inventory units on the same date.
B	Weighted Average (Perpetual)
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Jan	220	$14.50	$3,190				220	$14.50	$3,190
	10-Jan				170	$14.50	$2,465	50	$14.50	$725
	20-Jan	170	$13.50	$2,295				220	$13.73	3020
	25-Jan				200	$13.73	$2,745	20	$13.73	$275
	30-Jan	340	$13.00	$4,420				360	$13.04	$4,695
	Total				Cost of goods sold		$5,210	Cost of Ending inventory		$4,695
	*Weighted average rate is calculated by using the formula of (Total available balance / Total units available).
C	FIFO Perpetual:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Jan	220	$14.50	$3,190				220	$14.50	$3,190
	10-Jan				170	$14.50	$2,465	50	$14.50	$725
	20-Jan	170	$13.50	$2,295				50	$14.50	$725
								170	$13.50	$2,295
	25-Jan				50	$14.50	$725
					150	$13.50	$2,025	20	$13.50	$270
	30-Jan	340	$13.00	$4,420				20	$13.50	$270
								340	$13.00	$4,420
	Total				Cost of goods sold		$5,215	Cost of Ending inventory		$4,690
	*In FIFO method the units that have purchased first are released the first one.
D	Perpetual LIFO:
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-Jan	220	$14.50	$3,190				220	$14.50	$3,190
	10-Jan				170	$14.50	$2,465	50	$14.50	$725
	20-Jan	170	$13.50	$2,295				50	$14.50	$725
								170	$13.50	$2,295
	25-Jan				170	$13.50	$2,295
					30	$14.50	$435	20	$14.50	$290
	30-Jan	340	$13.00	$4,420				20	$14.50	$290
								340	$13.00	$4,420
	Total				Cost of goods sold		$5,195	Cost of Ending inventory		$4,710
	*In LIFO method the units that have purchased last, are released the first one.
Ans. 1	LAKER COMPANY
	Income Statements
	For Month Ended January 31
		Specific	Weighted	FIFO	LIFO
		identification	average
	Sales	$8,695	$8,695	$8,695	$8,695
	Cost of goods sold	-$5,200	-$5,210	-$5,215	-$5,195
	Gross profit	$3,495	$3,485	$3,480	$3,500
	Expenses	-$2,050	-$2,050	-$2,050	-$2,050
	Income before taxes (a)	$1,445	$1,435	$1,430	$1,450
	Income tax expenses (a*0.40)	-$578	-$574	-$572	-$580
	Net income	$867.00	$861.00	$858.00	$870.00
	*Sales =   Total no. of units * selling price per unit
		(170 + 200) * $23.50
		$8,695