Question

I only need help with 6-4. The income statements and questions 1, 2, and 3. I included the picture of 6-3 because that info is needed to do 6-4. Thanks!

w them at a cost of $980. Determine the cost of inventory. refurbished them at a Laker Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Units Sold at Retail 140 units @ $6.00 = $ 840 100 units @ $15 Jan. 1 Jan. 10 Jan. 20 Jan. 25 Jan. 30 60 units @ $5.00 = 300 Beginning inventory ............ Sales. ... Purchase .... Sales........... Purchase ........ Totals ........ 80 units @ $15 180 units @ $4.50 = 810 380 units $1,950 180 units Required The company uses a perpetual inventory system. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs and inventory amounts to cents.) For specific identification, ending inventory consists of 200 units, where 180 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory. Use the data in Exercise 6-3 to prepare comparative income statements for the month of January for Laker Company similar to those shown in Exhibit 6.8 for the four inventory methods. Assume expenses are $1,250 and the applicable income tax rate is 40%. (Round amounts to cents.) 1. Which method vields the highest net income? 2. Does net income using weighted average fall above, between, or below that using FIFO and LIFO? 3. If costs were rising instead of falling, which method would yield the highest net income?

Answer 1

Laker Company Perpetual Inventory System Inventory sheet - Specific Identification Cost of goods sold Cost of goods available for sale Ending Inventory Quantity Cost per unit Total cost Quantity Cost per unit Total cost Quantity Cost per unit Total cost Calculation Date 140 $ 6.00 $ 140 $ 6.00 $ 840 1-Jan 840 100 $ 6.00 $ 40 $ 6.00 $ 10-Jan 600 240 60 $ 5.00 $ 40 $ 6.00 $ 20-Jan 300 240 60 $ 5.00 $ 300 25 $ 6.00 $ 25-Jan 15 $ 6.00 S 150 90 5.00 $ 5 $ 5.00 $ 55 $ 275 25 180 $ 4.50 $ 15 $ 6.00 $ 30-Jan 810 90 5 $ 5.00 $ 25 180 $ 4.50 $ 810 $1,025 380 925 31-Jan 1,950 180 200 Inventory sheet - Average weighted cost Cost of goods available for sale Cost of goods sold Ending Inventory Quantity Quantity Cost per unit Total cost Quantity Cost per unit Total cost Calculation Date Cost per unit Total cost 6.00 $ 140 $ 140 $ 40 S 840 6.00 $ 1-Jan 840 100 $ 6.00 $ 6.00 $ 5.40 $ 240 10-Jan 600 60 $ 5.00 $ 100 S 540(240+300)/(40+60) = 5.40 per unit 20-Jan 300 80 $ 5.40 $ 5.40 $ 20 $ 25-Jan 432 108 200 $ 4.50 $ 4.59 $ (108+810)/(20+180) = 4.59 per unit 180 $ 810 30-Jan 918 $ $1,032 $ 31-Jan 1,950 380 180 200 918 Inventory sheet - FIFO Cost of goods sold Cost of goods available for sale Ending Inventory Quantity Quantity Total cost Quantity Cost per unit Total cost Date Cost per unit Total cost Cost per unit 140 $ 6.00 $ 140 $ 6.00 $ 1-Jan 840 840 10-Jan 100 $ 6.00 $ 40 $ 6.00 $ 600 240 60 $ 5.00 $ 6.00 $ 20-Jan 300 40 $ 240 60 $ 5.00 $ 300 40 $ 6.00 $ 25-Jan 240 40 S 5.00 $ 20 $ 5.00 $ 200 100 180 $ 4.50 $ 20 $ 5.00 $ 30-Jan 810 100 180 $ 4.50 $ 810 $ 380 910 31-Jan 1,950 180 1,040 200 Inventory sheet LIFO Cost of goods sold Cost of goods available for sale Ending Inventory Quantity Quantity Cost per unit Total cost Quantity Cost per unit Total cost 140 $ Date Cost per unit Total cost 6.00 $ 140 $ 6.00 $ 840 840 1-Jan 40 $ 100 $ 6.00 $ 6.00 $ 600 240 10-Jan 60$ 5.00 $ 40 $ 6.00 $ 20-Jan 300 240 60 $ 5.00 $ 300 60 $ 5.00 $ 25-Jan 300 20 $ 20 $ 6.00 $ 6.00 $ 120 120 180 $ 4.50 $ 20 $ 6.00 $ 30-Jan 810 120 180 $ 4.50 $ 810 $ 1,020 31-Jan 380 1,950 180 200 930

Laker Company	Specific ID	Weighted Average	FIFO	LIFO
Ending inventory	925	918	910	930
Cost of goods sold	1,025	1,032	1,040	1,020

Laker Company Income Statament Weighted Average FIFO Calculation Specific ID LIFO Sales 2,700 2,700 2,700 =180 15 2,700 Cost of goods sold 1,025 1,020 1,032 1,040 1,660 Gross Profit 1,680 1,675 1,668 1,250 Expenses 1,250 1,250 1,250 Income before taxes 425 418 410 430 Income tax expense @ 40% 170 167 164 172 Net income 255 251 246 258 Req 1 Highest income LIFO Req 2 Net income under weighted avg fall above, between or below that using FIFO and LIFO Between Req 3 If costs were rising, highest net income FIFO

Because in FIFO, cost of goods sold would be lower due to initial prices being lower

Which in turn would lead to higher net income