Question

Required information Use the following information for the Exercises below. [The following information applies to the...

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 145 units @ $ 7.00 = $ 1,015
Jan. 10 Sales 105 units @ $ 16.00
Jan. 20 Purchase 70 units @ $ 6.00 = 420
Jan. 25 Sales 85 units @ $ 16.00
Jan. 30 Purchase 190 units @ $ 5.50 = 1,045
Totals 405 units $ 2,480 190 units


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.

rev: 03_14_2019_QC_CS-162819

Exercise 5-4 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 $1,300, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.)



2. Which method yields the highest net income?

  • LIFO

  • FIFO

  • Weighted average

  • Specific identification



3. Does net income using weighted average fall between that using FIFO and LIFO?

  • No

  • Yes



4. If costs were rising instead of falling, which method would yield the highest net income?

  • FIFO

  • Specific identification

  • Weighted average

  • LIFO

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Answer #1

Answer:

1

Working notes for the answer:

_____________________________________________________________________

2

Which method yields the highest net income?

Answer: LIFO

_____________________________________________________________________

3

Does net income using weighted average fall between that using FIFO and LIFO?

Answer: Yes

___________________________________________________________________

4

If costs were rising instead of falling, which method would yield the highest net income?

Answer: FIFO

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