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Required information [The following information applies to the questions displayed below.] Laker Company reported the following January purchases and sales data for its only product.

Required information

[The following information applies to the questions displayed below.] 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 225 units @ $ 15.00 = $ 3,375
Jan. 10 Sales 175 units @ $ 24.00
Jan. 20 Purchase 180 units @ $ 14.00 = 2,520
Jan. 25 Sales 210 units @ $ 24.00
Jan. 30 Purchase 350 units @ $ 13.50 = 4,725
Totals 755 units $ 10,620 385 units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 370 units, where 350 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 $2,100 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 FIFO LIFO
Sales
Cost of goods sold
Gross profit 0 0 0 0
Expenses 2,100 2,100 2,100 2,100
Income before taxes (2,100) (2,100) (2,100) (2,100)
Income tax expense
Net income $(2,100) $(2,100) $(2,100) $(2,100)

2. Which method yields the highest net income?

  • LIFO

  • Weighted average

  • FIFO

  • Specific identification

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

  • No

  • Yes

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

  • Specific identification

  • FIFO

  • Weighted average

  • LIFO

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