Question

Chapter 05 Homework Saved Required information [The following information applies to the questions displayed below.] Part 2 of 2 Laker Company reported the following January purchases and sales data for its only product. Units Acquired at Cost 200 units @ $12.50 - $2,500 Units sold at Retail points 160 units @ $21.50 Date Activities Jan. 1 Beginning inventory Jan. 10 Sales Jan. 20 Purchase Jan. 25 Sales Jan. 30 Purchase Totals 130 units @ $11.50 = 1,495 140 units @ $21.50 300 units @ $11.00 = 630 units 3,300 $7,295 eBook 300 units Hint For specific identification, ending inventory consists of 330 units, where 300 are from the January 30 purchase, 5 are from the January 20 purchase, and 25 are from beginning inventory. Print References Required: 1. Prepare comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,850, and that the applicable income tax rate is 40%. 2. Which method yields the highest net income? 3. Does net income using weighted average fall above, between, or below that using FIFO and LIFO? 4. If costs were rising instead of falling, which method would yield the highest net income? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Prepare comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,850, and that the applicable income tax rate is 40%. (Round your average cost per unit to 2 decimal places.) LAKER COMPANY Income Statements For Month Ended January 31 Specific Weighted Identification Average FIFO L IFO $ 0.00 $ 0.00 $ 0.00 $ 0.00 Sales Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income $ 0.00 $ 0.00 $ 0.00 $ $ 0.00 $ 0.00 $ 0.00 $ 0.00 Required 1 Required 2 >

Answer 1

SPECIFIC IDENTIFICATION METHOD
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Jan, 01	Beginning inventory	200	$             12.50	$2,500	175	$         12.50	$2,188	25	$         12.50	$313
Jan, 20	Purchases	130	$             11.50	$1,495	125	$         11.50	$1,438	5	$         11.50	$58
Jan, 30	Purhchases	300	$             11.00	$3,300	0	$                -	$0	300	$         11.00	$3,300
	Total	630		$7,295	300		$3,625	330		$3,670
FIFO METHOD
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Jan, 01	Beginning inventory	200	$             12.50	$2,500
	Purhases
Jan, 20	Purchases	130	$             11.50	$1,495
Jan, 30	Purhchases	300	$             11.00	$3,300
	Goods Available for Sales	630		$7,295
	Sales				200	$         12.50	$2,500
					100	$         11.50	$1,150	30	$         11.50	$345
								300	$         11.00	$3,300
	Total	630		$7,295	300		$3,650	330		$3,645
LIFO METHOD
WEIGHTED AVERAGE METHOD - LIFO
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Jan, 01	Beginning inventory	200	$             12.50	$2,500
	Purhases
Jan, 20	Purchases	130	$             11.50	$1,495
Jan, 30	Purhchases	300	$             11.00	$3,300
	Goods Available for Sales	630		$7,295
	Sales				300	$         11.00	$3,300	200	$         12.50	$2,500
								130	$         11.50	$1,495
	Total	630		$7,295	300		$3,300	330		$3,995
WEIGHTED AVERAGE METHOD
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
Jan, 01	Beginning inventory	200	$             12.50	$2,500
Jan, 20	Purchases	130	$             11.50	$1,495
Jan, 30	Purhchases	300	$             11.00	$3,300
	Total	630	$11.58	$7,295	300	$11.58	$3,474	330	$11.58	$3,821
SOLUTION : 1
	INCOME STATEMENT
		Specific Identification Method	FIFO	LIFO	Weigt. Avg Method
	Sales (300 units X $ 21.50)	$6,450	$6,450	$6,450	$6,450
	Less: Cost of Goods Sold	$3,625	$3,650	$3,300	$3,474
	Gross Profit	$2,825	$2,800	$3,150	$2,976
	Operating expenses	$1,850	$1,850	$1,850	$1,850
	Income before taxation	$975	$950	$1,300	$1,126
	Taxation @ 40%	$390	$380	$520	$450
	Net income After tax	$585	$570	$780	$676
SOLUTION : 2	Highet Income = LIFO Method
SOLUTION : 3	Net income as weighted avg method will fall between FIFO and LIFO
	Answer = Yes
SOLUTION : 4	IF cost is rising than highet income will be as FIFO Method
	Answer = FIFO