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 | 240 | units | @ | $ | 16.50 | = | $ | 3,960 | ||||||||
Jan. | 10 | Sales | 190 | units | @ | $ | 25.50 | |||||||||||
Jan. | 20 | Purchase | 170 | units | @ | $ | 15.50 | = | 2,635 | |||||||||
Jan. | 25 | Sales | 190 | units | @ | $ | 25.50 | |||||||||||
Jan. | 30 | Purchase | 380 | units | @ | $ | 15.00 | = | 5,700 | |||||||||
Totals | 790 | units | $ | 12,295 | 380 | units | ||||||||||||
The Company uses a perpetual inventory system. For specific
identification, ending inventory consists of 410 units, where 380
are from the January 30 purchase, 5 are from the January 20
purchase, and 25 are from beginning inventory.
Part 1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods (LIFO, FIFO, Specific Identification, Weighted Average). Assume expenses are $2,250, and that the applicable income tax rate is 40%.
Part 2. Which method yields the highest net income?
LIFO
FIFO
Specific identification
Weighted average
Part 3. Does net income using weighted average fall between that
using FIFO and LIFO?
No
Yes
Part 4. If costs were rising instead of falling, which method would
yield the highest net income?
Specific identification
LIFO
Weighted average
FIFO
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 | 240 | $16.50 | $3,960 | 215 | $16.50 | $3,547.50 | 25 | $16.50 | $412.50 | |
20-Jan | Purchases | 170 | $15.50 | $2,635 | 165 | $15.50 | $2,557.50 | 5 | $15.50 | $77.50 | |
30-Jan | Purchases | 380 | $15.00 | $5,700 | 0 | $15.00 | $0.00 | 380 | $15.00 | $5,700 | |
Total | Cost of goods sold | $6,105 | Ending inventory | $6,190 | |||||||
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 | 240 | $16.50 | $3,960 | 240 | $16.50 | $3,960 | |||||
10-Jan | 190 | $16.50 | $3,135 | 50 | $16.50 | $825 | |||||
20-Jan | 170 | $15.50 | $2,635 | 220 | $15.73 | 3460 | |||||
25-Jan | 190 | $15.73 | $2,988 | 30 | $15.73 | $472 | |||||
30-Jan | 380 | $15.00 | $5,700 | 410 | $15.05 | $6,172 | |||||
Total | Cost of goods sold | $6,123 | Cost of Ending inventory | $6,172 | |||||||
*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 | 240 | $16.50 | $3,960 | 240 | $16.50 | $3,960 | |||||
10-Jan | 190 | $16.50 | $3,135 | 50 | $16.50 | $825 | |||||
20-Jan | 170 | $15.50 | $2,635 | 50 | $16.50 | $825 | |||||
170 | $15.50 | $2,635 | |||||||||
25-Jan | 50 | $16.50 | $825 | ||||||||
140 | $15.50 | $2,170 | 30 | $15.50 | $465 | ||||||
30-Jan | 380 | $15.00 | $5,700 | 30 | $15.50 | $465 | |||||
380 | $15.00 | $5,700 | |||||||||
Total | Cost of goods sold | $6,130 | Cost of Ending inventory | $6,165 | |||||||
*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 | 240 | $16.50 | $3,960 | 240 | $16.50 | $3,960 | |||||
10-Jan | 190 | $16.50 | $3,135 | 50 | $16.50 | $825 | |||||
20-Jan | 170 | $15.50 | $2,635 | 50 | $16.50 | $825 | |||||
170 | $15.50 | $2,635 | |||||||||
25-Jan | 170 | $15.50 | $2,635 | ||||||||
20 | $16.50 | $330 | 30 | $16.50 | $495 | ||||||
30-Jan | 380 | $15.00 | $5,700 | 30 | $16.50 | $495 | |||||
380 | $15.00 | $5,700 | |||||||||
Total | Cost of goods sold | $6,100 | Cost of Ending inventory | $6,195 | |||||||
*In LIFO method the units that have purchased last, are released the first one. | |||||||||||
Ans. 1 | L A K E R COMPANY | ||||||||||
Income Statements | |||||||||||
For Month Ended January 31 | |||||||||||
Specific identification | Weighted avg. | FIFO | LIFO | ||||||||
Sales | $9,690 | $9,690 | $9,690 | $9,690 | |||||||
Cost of goods sold | -6105 | -6123 | -$6,130.00 | -$6,100.00 | |||||||
Gross profit | $3,585 | $3,567 | $3,560 | $3,590 | |||||||
Expenses | -$2,250 | -$2,250 | -$2,250 | -$2,250 | |||||||
Income before taxes (a) | $1,335 | $1,317 | $1,310 | $1,340 | |||||||
Income tax expenses (a*0.40) | -$534.00 | -$526.80 | -$524.00 | -$536.00 | |||||||
Net income | $801.00 | $790.20 | $786.00 | $804.00 | |||||||
*Sales = Total no. of units * selling price per unit | |||||||||||
(190 + 190) * $25.50 | |||||||||||
$9,690 | |||||||||||
Ans.2 | LIFO method yields the highest Net income. | ||||||||||
Ans. 3 | Yes, net income under weighted average method is $790.20 which is falls between FIFO ($786) and LIFO ($804). | ||||||||||
Ans. 4 | FIFO | ||||||||||
Explanations: When prices are rising, the FIFO inventory method provides the lowest cost of goods sold | |||||||||||
and highest net income, because in FIFO method the units are sold from the first purchases so the units will be | |||||||||||
sold on lower rate as a result cost of goods sold will be lowest which provides the higher Net income. | |||||||||||
Laker Company reported the following January purchases and sales data for its only product. Date Activities...
Laker Company reported the following January purchases and sales data for its only product Units Required at Cost 240 unitat $16.50 - $3.960 Units sold at Retail Date Activities Jan. 1 Beginning inventory Jan. 10 Sales Jan. 20 Parehase Jan. 25 Sales Jan. 30 Purchase Totale 170 unital $15.50 - 2,635 190 units $25.50 190 units e $25.50 $15.00 - 380 units 790 units 5,700 $12,295 380 units The Company uses a perpetual Inventory system. For specific identification, ending Inventory...
Required information [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 240 units @ $ 16.50 = $ 3,960 Jan. 10 Sales 190 units @ $ 25.50 Jan. 20 Purchase 170 units @ $ 15.50 = 2,635 Jan. 25 Sales 190 units @ $ 25.50 Jan. 30 Purchase 380 units @ $...
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 240 units @ $ 16.50 = $ 3,960 Jan. 10 Sales 190 units @ $ 25.50 Jan. 20 Purchase 170 units @ $ 15.50 = 2,635 Jan. 25 Sales 190 units @ $...
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 150 units @ $ 7.50 = $ 1,125 Jan. 10 Sales 110 units @ $ 16.50 Jan. 20 Purchase 80 units @ $ 6.50 = 520 Jan. 25 Sales 90 units @ $ 16.50 Jan. 30 Purchase 200 units @ $ 6.00 = 1,200 Totals 430 units $ 2,845 200 units The...
Laker Company reported the following January purchases and sales data for its only product Date Activities Units Sold at Retail Units Acquired at Cost 180 units 56.40 = $ 1,152 Jan. 1 Beginning 120 units @ $15.80 inventory Jan. 10 Sales Jan.20 Purchase Jan. 25 Sales 100 units 20 = 540 100 units @ $15.80 Jan. 30 Purchase 220 unitsga.90 1,078 Totals 500 units $2,770 220 units The Company uses a periodic inventory system. For specific identification, ending inventory consists...
Laker Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Exercise 6-3 Perpetual: Inventory costing methods P1 Units Sold at Retail 140 units @ $6.00 = $ 840 100 units @ $15 Jan. 1 Jan. 10 Jan. 20 Jan. 25 Jan. 30 Beginning inventory ... Sales... Purchase .. Sales..... Purchase .. Totals 60 units @ $5.00 = 300 80 units @ $15 180 units @ $4.50 = 810 380 units...
1. Laker Company reported the following January purchases and sales data for its only product. -The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 410 units, where 380 are from the January 30 purchase, 5 are from the January 20 purchase, and 25 are from beginning inventory. - Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,250, and that the applicable income tax...
Required information [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 240 units @ $ 16.50 = $ 3,960 Jan. 10 Sales 190 units @ $ 25.50 Jan. 20 Purchase 170 units @ $ 15.50 = 2,635 Jan. 25 Sales 190 units @ $ 25.50 Jan. 30 Purchase 380 units @ $...
[The following information applies to the questions displayed below.] Laker Company reported the following January purchases and sales data for its only product. Units Acquired at Cost 240 units @ $16.50 = $ 3,960 Units sold at Retail 190 units @ $25.50 Date Activities Jan. 1 Beginning inventory Jan. 10 Sales Jan. 20 Purchase Jan. 25 Sales Jan. 30 Purchase Totals 170 units @ $15.50 = 2,635 190 units @ $25.50 $15.00 = 380 units @ 790 units 5,700 $12,...
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 190 units @ $ 7.00 = $ 1,330 Jan. 10 Sales 150 units @ $ 16.00 Jan. 20 Purchase 110 units @ $ 6.00 = 660 Jan. 25 Sales 130 units @ $ 16.00 Jan. 30 Purchase 280 units @ $ 5.50 = 1,540 Totals 580 units $ 3,530 280 units The...