Income Effects Of Inventory Methods

Exercise 5-4 Perpetual: 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 230  units  @  $8.60 = $ 1,978
Jan. 10 Sales 130  units  @$16.60
Jan. 20 Purchase 300  units  @  $7.60 = 2,280
Jan. 25 Sales 225  units  @$16.60
Jan. 30 Purchase 170  units  @  $6.60 = 1,122
Totals 700  units $ 5,380 355  units
Laker uses a perpetual inventory system. For specific identification, ending inventory consists of 345 units, where 170 are from the January 30 purchase, 80 are from the January 20 purchase, and 95 are from beginning inventory.
1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,400, and that the applicable income tax rate is 39%. (Do not round your Intermediate calculations.)

 

 

2. Which method yields the highest net income?
[removed] Specific identification
[removed] LIFO
[removed] FIFO
[removed] Weighted average

 

3. Does net income using weighted average fall between that using FIFO and LIFO?
[removed] Yes
[removed] No

 

4. If costs were rising instead of falling, which method would yield the highest net income?
[removed] Weighted average
[removed] LIFO
[removed] Specific identification
[removed] FIFO

 

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