Question

Larson Company employs a periodic inventory system and reported the following inventory information for the month of August: August 1 Beginning inventory 2,600 units @ $27 cost per unit August 6 Sold 1,100 units August 15 Purchased 1,400 units @ $36 cost per unit August 18 Sold 1,500 units August 23 Purchased 900 units @ $29 cost per unit August 26 Purchased 600 units @ $23 cost per unit August 29 Sold 2,300 units August 30 Purchased 1,500 units @ $40 cost per unit During August, Larson Company reported operating expenses of $29,000 and had an income tax rate of 39%. Using the weighted average method, Larson Company's gross profit for August totaled $71,050. Calculate the amount of net income reported on Larson Company's income statement for August using the LIFO method.

Answer 1

LIFO Method

Income Statement

$ 243,216 Sales

-$ 144,300 Cost of Goods

-$ 29,000 Operating Expenses

$ 69,916 Gross Profit

$ 69,916 Net Income BEFORE Taxes

-$ 27,267 Tax RATE 39%

$ 42,649 Net Income after Taxes

Step-by-step explanation:

With the LIFO Method of Inventory the Gross Profit it's a little lower than with the Weighted Average Method.

The LIFO method means that the first units that are sold must be at the cost of the last unit purchased an so on.

The Cost of Goods it's determined by the last purchases made by the company and the inventory it´s valuated at the cost of the initial units purchased.

WEIGHTED AVERAGE

Q Unit USD Date inventory

$ 2,600 $ 27 August 1 Beginning

-$ 1,100 $ 27 $ 29,700 August 6 Sold

$ 1,500 $ 27 Subtotal

$ 1,400 $ 36 August 15 Purchased

$ 2,900 $ 31 Subtotal

-$ 1,500 $ 31 $ 47,017 August 18 Sold

$ 1,400 $ 31 Subtotal

$ 0,900 $ 29 August 23 Purchased

$ 0,600 $ 23 August 26 Purchased

$ 2,900 $ 29 Subtotal

-$ 2,300 $ 29 $ 66,448 August 29 Sold

$ 0,600 $ 29 Subtotal

$ 1,500 $ 40 August 30 Purchased

$ 2,100 $ 37 $ 143,166 Subtotal

LIFO

Q Unit Date inventory USD

$ 2,600 $ 27 August 1 Beginning

-$ 1,100 $ 27 August 6 Sold $ 29,700

$ 1,500 $ 27 Subtotal

$ 1,400 $ 36 August 15 Purchased

-$ 1,400 $ 36 August 18 Sold $ 50,400

-$ 0,100 $ 27 August 18 Sold $ 2,700

$ 1,400 $ 27 Subtotal

$ 0,900 $ 29 August 23 Purchased

$ 0,600 $ 23 August 26 Purchased

-$ 0,600 $ 23 August 29 Sold $ 13,800

-$ 0,900 $ 29 August 29 Sold $ 26,100

-$ 0,800 $ 27 August 29 Sold $ 21,600

$ 0,600 $ 27 Subtotal

$ 1,500 $ 40 August 30 Purchased

$ 2,100 Subtotal $ 144,300