Use the following information for the Exercises below. [The following informatio
ID: 2400774 • Letter: U
Question
Use the following information for the Exercises below. [The following information applies to the questions displayed below.J Laker Company reported the following January purchases and sales data for its only product Activities Units sold at Retail 160 units $22.50 180 units $22.50 Date Units Acquired at Cost Jan. 1 Beginning inventory 210 unitse 13.50 $2,835 Jan. 10 Sales Jan. 20 Purchase Jan. 25 Sales Jan. 30 Purchase 150 units $12.50-1,875 320 units 12.003,840 Totals 680 units $8,550 340 units The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 340 units, where 320 are from the January 30 purchase, 5 are from the January 20 purchase, and 15 are from beginning inventory.Explanation / Answer
Solution:
Part 1 – Income Statements
Income Statement
Specific
Weighted
Identification
Average
FIFO
LIFO
Sales Revenue (160 Units * $22.50 + 180Units*$22.50)
$7,650
$7,650
$7,650
$7,650
Cost of Goods Sold (Refer working notes)
$4,445
$4,455
$4,460
$4,440
Gross Profit
$3,205
$3,195
$3,190
$3,210
Expenses (information is missing about expense assumed $2000)
$2,000
$2,000
$2,000
$2,000
Income before taxes (Gross Profit - Expenses)
$1,205
$1,195
$1,190
$1,210
Income tax Expenses (rate is missing in the question, assumed 30%))
$362
$359
$357
$363
Net Income (income before taxes - tax)
$844
$837
$833
$847
Under perpetual system, inventory is updated after each transaction whether sale or purchase of units.
Note 1 ---
Under FIFO method, the oldest units are sold first.
Cost of Goods Sold (FIFO method) = (160 Units*$13.50) + (50 Units from Jan 1 Inventory*13.50 + 130 Units from Jan 20 Purchases * $12.50)
= $2,160 + $675 + $1,625
= $4,460
Note 2 ---
Under LIFO method, the recent purchased units are sold first.
Cost of Goods Sold (LIFO method) = (160 Units*$13.50) + (150 Units from Jan.20 Purchase *$12.50 + 30 Units from Beginning Inventory * $13.50)
= $2,160 + $1,875 + $405
= $4,440
Note 3 –
Under Average Method, average unit cost is applied to the sold units.
Average Method
Units
Average Cost
Total Cost
Unit Sold from Beg Inventory (A)
160
$13.50
$2,160
Avg cost for units sold on Jan.25
Balance from Beginning Inventory (210 - 160)
50
$13.50
$675
Purchase Jan.20
150
$12.50
$1,875
Total Cost
200
$2,550
Average Cost (2,550 / 200)
$12.75
Cost of Unit Sold on Jan.25 (B)
180
$12.75
$2,295
Total Cost of Goods Sold (A + B)
$4,455
Note 4 –
Cost of Goods Sold (Specific Identification)
Cost of Ending Inventory
Units
Unit Cost
Total Cost
Jan 30 Purchases
320
$12
$3,840.00
Jan 20 Purchases
5
$12.50
$62.50
Beginning Inventory Jan.1
15
$13.50
$202.50
Total Cost of Ending Inventory
340
$4,105.00
Cost of Goods Sold
Units
Total Cost
Total Units Available for Sale
680
$8,550
Less: Ending Inventory
340
$4,105
Cost of Goods Sold
340
$4,445
Under LIFO method, the units purchased recently are issued or sold first.
Part 2 --- LIFO method
As per the Income statement (whether the information about expenses and tax is missing), the LIFO method gives highest income.
Part 3 --- Yes, the Net Income using weighted average fall between that using FIFO and LIFO
Part 4 – FIFO method, given higher net income if costs were rising instead of falling.
Note --- expenses and tax information is missing. I assumed the same to answer this question.
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Income Statement
Specific
Weighted
Identification
Average
FIFO
LIFO
Sales Revenue (160 Units * $22.50 + 180Units*$22.50)
$7,650
$7,650
$7,650
$7,650
Cost of Goods Sold (Refer working notes)
$4,445
$4,455
$4,460
$4,440
Gross Profit
$3,205
$3,195
$3,190
$3,210
Expenses (information is missing about expense assumed $2000)
$2,000
$2,000
$2,000
$2,000
Income before taxes (Gross Profit - Expenses)
$1,205
$1,195
$1,190
$1,210
Income tax Expenses (rate is missing in the question, assumed 30%))
$362
$359
$357
$363
Net Income (income before taxes - tax)
$844
$837
$833
$847
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