Use the following information for the Exercises below.

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[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	195	units	@	$	12.00	=	$	2,340
Jan.	10		Sales										155	units	@	$	21.00
Jan.	20		Purchase	120	units	@	$	11.00	=		1,320
Jan.	25		Sales										135	units	@	$	21.00
Jan.	30		Purchase	290	units	@	$	10.50	=		3,045
			Totals	605	units					$	6,705		290	units

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 315 units, where 290 are from the January 30 purchase, 5 are from the January 20 purchase, and 20 are from beginning inventory.

Exercise 5-4 Perpetual: Income effects of inventory methods LO A1

Required: 1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $1,800 and that the applicable income tax rate is 40%.

2. Which method yields the highest net income?

• LIFO

• FIFO

• Specific identification

• Weighted average

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?

• LIFO

• FIFO

• Weighted average

• Specific identification

LAKER COMPANY FIFO LIFO Sales Income Statements For Month Ended January 31 Specific Weighted Identification Average $ 6,090 $ 6,090 $ 3,365 3,385 2,725 2,705 1,800 1,800 925 905 $ Cost of goods sold Gross profit Expenses Income before taxes 6,090 3,360 2,730 1,800 930 6,090 3,379 2,711 1,800 911 Income tax expense 370 362 372 364 Net income $ 555 $ 543 $ 558 $ 547