Exercise 6-4 Perpetual: Income effects of inventory methods LO A1

Required information

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	205	units	@	$	13.00	=	$	2,665
Jan.	10		Sales										165	units	@	$	22.00
Jan.	20		Purchase	140	units	@	$	12.00	=		1,680
Jan.	25		Sales										145	units	@	$	22.00
Jan.	30		Purchase	310	units	@	$	11.50	=		3,565
			Totals	655	units					$	7,910		310	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 345 units, where 310 are from the January 30 purchase, 5 are from the January 20 purchase, and 30 are from beginning inventory.

Use the following information for the Exercises below.

4. If costs were rising instead of falling, which method would yield the highest net income? Weighted average FIFO Specific identification OLIFO 1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,900, and that the applicable income tax rate is 40%. (Round your Intermediate calculations to 2 decimal places.) LAKER COMPANY Income Statements For Month Ended January 31 Specific Weighted Identification Average S 6,820 S 6,820 FIFO s LIFO 6,820 6,820 S Sales Cost of goods sold Gross profit Expenses Income before taxes Income tax expense Net income 6,820 1,900 4,920 6,820 1.900 4,020 6,820 1,900 4,920 6,820 1.900 4.920 S 4,920 S 4,920 S 4,920 S 4,920 2. Which method yields the highest net income? LIFO Specific identification O FIFO Weighted average 3. Does net income using weighted average fall between that using FIFO and LIFO? No O Yes