Question

Laker Company reported the following January purchases and sales data for its only product:

Date Activites Units Acquired at Cost Units sold at Retail
Jan. 1 Beginning-
inventory 180 units @ $10.50 = $1,890
Jan. 10 Sales 140 units @ $19.50
Jan. 20 Purchase 110 units @ $9.50 = 1,045
Jan. 25 Sales 150 units @ $19.50
Jan. 30 Purchase 260 units @ $9.00 = 2,340
Totals 550 units - $5,275 270 units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 280 units, where 260 are from the January 30 purchase. 5 are from the January 20 purchase, inventory al inventory system.

1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are S1.650, 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?

a. Specific identification
b. LIFO
c. Weighted average
d. FIFO

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

Answer 1

1. find answer to 1 in the explanation below

2. Answer=LIFO

3.Yes

4. FIFO (first in first out)

Step-by-step explanation:

1. Complete comparative income statements for the month of January for l aker Company for the four

inventor/ methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%.

(Round your intermediate calculations to 2 decimal l)laces.)

LAKER COMPANY

Income Statements

Month End January 31

Specific Weighted

Identification Average FIFO LIFO

Sales $ 2.700. $ 2,700 $ $ 2.700. $ 2,700

Cost of goods sold 1,025. 1.032. 1,040 1,020

Gross profit 1,675 1,668 1,660 1,680

Expenses 1,250. 1,250. 1,250. 1,250.

Income before taxes 425 418 410 430

Income tax expense 170 167 164 172

Net income $ 255 $ 251 $ 246 $258

2. Which method yields the highest net income?

LIFO

Specific identification

FIFO

Weighted average

Answer=LIFO

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

Yes

No

answer=Yes

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

LIFO

FIFO

Weighted average

Specific identification

Answer FIFO

Fifo is an inventory method whereby a product placed in first will be sold out first. it is used as a tool in accounting .