Question

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 Jan. 1 Beginning inventory Jan. 10 Sales Jan. 2e Purchase Jan. 25 Sales Jan. 30 Purchase Totals Units Acquired at Cost Units sold at Retail 180 units @ $10.50 = $1,898 140 units @ $19.50 110 units @ $ 9.50 = 1,845 130 units@ $19.50 278 units @ $ 9.00 = 2,430 568 units $5,365 270 units Required: 1. Complete comparative Income statements for the month of January for Laker Company for the four Inventory methods. Assume expenses are $1,650, 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 010 0 Sales Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income 01 0 S 0

Answer 1

Solution 1:

Computation of ending inventory COGS under FIFO - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	180	$10.50	$1,890.00	0	$0.00	$0.00	0	$0.00	$0.00	180	$10.50	$1,890.00
10-Jan	180	$10.50	$1,890.00	0	$0.00	$0.00	140	$10.50	$1,470.00	40	$10.50	$420.00
20-Jan	40	$10.50	$420.00	110	$9.50	$1,045.00	0	$0.00	$0.00	40	$10.50	$420.00
										110	$9.50	$1,045.00
25-Jan	40	$10.50	$420.00	0	$0.00	$0.00	40	$10.50	$420.00	20	$9.50	$190.00
	110	$9.50	$1,045.00				90	$9.50	$855.00
30-Jan	20	$9.50	$190.00	270	$9.00	$2,430.00	0	$0.00	$0.00	20	$9.50	$190.00
										270	$9.00	$2,430.00
Total							270		$2,745.00	290		$2,620.00

Computation of ending inventory COGS under LIFO - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	180	$10.50	$1,890.00	0	$0.00	$0.00	0	$0.00	$0.00	180	$10.50	$1,890.00
10-Jan	180	$10.50	$1,890.00	0	$0.00	$0.00	140	$10.50	$1,470.00	40	$10.50	$420.00
20-Jan	40	$10.50	$420.00	110	$9.50	$1,045.00	0	$0.00	$0.00	40	$10.50	$420.00
										110	$9.50	$1,045.00
25-Jan	40	$10.50	$420.00	0	$0.00	$0.00	110	$9.50	$1,045.00	20	$10.50	$210.00
	110	$9.50	$1,045.00				20	$10.50	$210.00
30-Jan	20	$10.50	$210.00	270	$9.00	$2,430.00	0	$0.00	$0.00	20	$10.50	$210.00
										270	$9.00	$2,430.00
Total							270		$2,725.00	290		$2,640.00

Computation of ending inventory COGS under Weighted Average Cost - Laker Company
Date	Beginning Inventory			Purchase			Cost of Goods Sold			Ending Inventory
	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount	Qty	Rate	Amount
1-Jan	180	$10.50	$1,890	0	$0.00	$0	0	$0.00	$0	180	$10.50	$1,890
10-Jan	180	$10.50	$1,890	0	$0.00	$0	140	$10.50	$1,470	40	$10.50	$420
20-Jan	40	$10.50	$420	110	$9.50	$1,045	0	$0.00	$0	150	$9.77	$1,465
25-Jan	150	$9.77	$1,465	0	$0.00	$0	130	$9.77	$1,270	20	$9.77	$195
25-Mar	20	$9.77	$195	270	$9.00	$2,430	0	$0.00	$0	290	$9.05	$2,625
Total							270		$2,740	290		$2,625

Computation of COGS and ending inventory - Specific identification
Particulars	Cost of goods available for sale			Cost of goods sold			Ending Inventory
	Nos of units	Unit Cost	Cost of goods available for sale	Nos of units sold	Unit Cost	Cost of goods sold	Nos of units in ending inventory	Unit Cost	Ending inventory
Beginning inventory	180	$10.50	$1,890	165	$10.50	$1,732.50	15	$10.50	$157.50
Purchases:
20-Jan	110	$9.50	$1,045	105	$9.50	$997.50	5	$9.50	$47.50
30-Jan	270	$9.00	$2,430	0	$9.00	$0.00	270	$9.00	$2,430.00
Total	560		$5,365	270		$2,730.00	290		$2,635.00

Income Statement - Laker Company
Particulars	Specific identification	Weighted Average	FIFO	LIFO
Sales	$5,265	$5,265	$5,265	$5,265
Cost of goods sold	$2,730	$2,740	$2,745	$2,725
Gross Profit (Sales - COGS)	$2,535	$2,525	$2,520	$2,540
Expenses	$1,650	$1,650	$1,650	$1,650
Income before taxes	$885	$875	$870	$890
Income tax expense (40%)	$354	$350	$348	$356
Net Income	$531	$525	$522	$534

Solution 2:

LIFO method yields the highest net income

Solution 3:

Yes, net income using weighted average falls between net income under FIFO or LIFO

Solution 4:

FIFO method yield the highest income if cost is rising.