Question

Chapter 05 Homework i 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 sold at Retail points Units Acquired at Cost 145 units @ $7.00 - $1,015 105 units @ $16.00 Date Activities Jan. 1 Beginning inventory Jan. 10 Sales Jan. 20 Purchase Jan. 25 Sales Jan. 30 Purchase Totals 70 units @ $6.00 = 420 85 units @ $16.00 $5.50 = eBook 190 units @ 405 units 1,045 $2,480 190 units Hint 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. Print References 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%. 2. Which method yields the highest net income? 3. Does net income using weighted average fall between 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 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.) LAKER COMPANY Income Statements For Month Ended January 31 Specific Weighted Identification Average FIFO L IFO Sales Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income < 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	145	$                7.00	$1,015	125	$           7.00	$875	20	$           7.00	$140
Jan, 20	Purchases	70	$                6.00	$420	65	$           6.00	$390	5	$           6.00	$30
Jan, 30	Purhchases	190	$                5.50	$1,045	0	$                -	$0	190	$           5.50	$1,045
	Total	405		$2,480	190		$1,265	215		$1,215
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							145	$           7.00	$1,015
Jan, 10	Sales				105	$           7.00	$735	40	$           7.00	$280
Jan, 20	Purhchases	70	$                6.00	$420				40	$           7.00	$280
								70	$           6.00	$420
Jan, 25	Sales				40	$           7.00	$280
					45	$           6.00	$270	25	$           6.00	$150
Jan, 30	Purchases	190	$                5.50	$1,045				25	$           6.00	$150
								190	$           5.50	$1,045
	Total	260		$1,465	190		$1,285	215		$1,195
LIFO 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							145	$           7.00	$1,015
Jan, 10	Sales				105	$           7.00	$735	40	$           7.00	$280
Jan, 20	Purhchases	70	$                6.00	$420				40	$           7.00	$280
								70	$           6.00	$420
Jan, 25	Sales				70	$           6.00	$420
					40	$           7.00	$280	25	$           7.00	$175
Jan, 30	Purchases	190	$                5.50	$1,045				25	$           7.00	$175
								190	$           5.50	$1,045
	Total	-		$0	215		$1,435	215		$1,220
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							145	$           7.00	$1,015
Jan, 10	Sales				105	$           7.00	$735	40	$           7.00	$280
Jan, 20	Purchases	70	$                6.00	$420				110	$           6.36	$700
Jan, 25	Sales				85	$           6.36	$541	25	$           6.36	$159
Jan, 30	Purhchases	190	$                5.50	$1,045				215	$           5.60	$1,204
	Total	260		$1,465	190		$1,276	215		$1,204
SOLUTION : 1
	INCOME STATEMENT
		Specific Identification Method	FIFO	LIFO	Weigt. Avg Method
	Sales (190 units X $ 16)	$3,040	$3,040	$3,040	$3,040
	Less: Cost of Goods Sold	$1,265	$1,285	$1,435	$1,276
	Gross Profit	$1,775	$1,755	$1,605	$1,764
	Operating expenses	$1,300	$1,300	$1,300	$1,300
	Income before taxation	$475	$455	$305	$464
	Taxation @ 40%	$190	$182	$122	$186
	Net income After tax	$285	$273	$183	$278
SOLUTION : 2	Highet Income = Specification identification 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