Exercise 5-6 Periodic: Income effects of inventory methods LO A1

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

140

units

@ $6.00

=

$

840

Jan.

10

Sales

100

units

@$15

Jan.

20

Purchase

60

units

@ $5.00

=

300

Jan.

25

Sales

80

units

@$15

Jan.

30

Purchase

180

units

@ $4.50

=

810

Totals

380

units

$

1,950

180

units

The Company uses a periodic inventory system. 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.

Required

1.	Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round your average cost per unit to 2 decimal places.)

2.

Which method yields the highest net income?

	FIFO
	LIFO
	Weighted average
	Specific identification

3.

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

	Yes
	No

4.

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

	Weighted average
	FIFO
	Specific identification
	LIFO

LAKER COMPANY Income Statements For Month Ended January 31 Specific Identification Weighted Average FIFO LIFO Sales Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income 1,500 1,500 1,500 1,500