0 Required information The following information applies to the questions displa
ID: 2566875 • Letter: 0
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0 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 cquired at Coat-units sold at Retail Beginning Jan. 1 inventory Jan. 10 Sale Jan. 20 Purchase Jan.25 Sales Jan.30 Purchase 150 units8 $7.50- 1,125 80 unita8 $6.50- 520 00 units9 $6.00-/200 110 unitS $16.50 90 units9 $16.50 Totals 430 units 2, 845 200 units Required 1. Complete comparative income statements for the month of January for Laker Company for the four inventory methods Assume expenses are $1.350, and that the applicable income tax rate is 40% (Round your average cost per unit to 2 decimal places.) LAKER COIMPANY Income Statements For Month Ended January 31Explanation / Answer
1) In the answer given above, the cost of goods sold of various inventory methods seems to be wrong. So the calculation of cost of goods sold under various inventory method is shown as follows :-
Specific Identification Method
As there is nothing mentioned in the question regarding specific recognition, thus we have assumed that cost of goods sold given in this question of $1,425 is correct.
Weighted Average method
weighted average rate = Total purchase amount and opening Inventory/total units = $1,720+$1,125/280+150 units = $6.62
Value of closing inventory = 230 units*$6.62 = $1,522
Cost of goods sold = Opening Inventory +Purchases - Closing Inventory
= $1,125 + ($520+$1,200) - $1,522 = $1,323
FIFO method
under FIFO method, the inventory should be that which is purchased in the last. Thus 200 units purchased on Jan.30 and 30 units purchased on Jan. 20
Value of closing Inventory = (30 units*$6.5) + (200 units*$6) = $1,395
Cost of goods sold = Opening Inventory +Purchases - Closing Inventory
= $1,125 + ($520+$1,200) - $1,395 = $1,450
LIFO method
Under LIFO method the stock first purchased remains. Thus out of 230 units 200 units are those purchased on jan.30 as there is no sale after that date in january and 30 units should be from beginning inventory
Value of closing inventory = (200 units*$6)+(30 units*$7.5) = $1,425
Cost of goods sold = Opening Inventory +Purchases - Closing Inventory
= $1,125 + ($520+$1,200) - $1,425 = $1,420
1) Laker Company
Income Statement for the month ended January 31 (Amount in $)
3,300
(200*$16.50)
3,300
(200*$16.50)
3,300
(200*$16.50)
3,300
(200*$16.50)
(iii)Gross Profit
(i)-(ii)
2) Weighted average methods yield the highest net income as it can be shown from the above income statement in part (1) (i.e. net income of $376)
3) The net income using weighted average does not fall between FIFO and LIFO as net income under weighted average is highest.
4) The FIFO would yield the highest net income if costs were rising instead of falling.
Particulars Specific identification Weighted average FIFO LIFO (i)Sales3,300
(200*$16.50)
3,300
(200*$16.50)
3,300
(200*$16.50)
3,300
(200*$16.50)
(ii)Cost of goods sold 1,425 1,323 1,450 1,420(iii)Gross Profit
(i)-(ii)
1,875 1,977 1,850 1,880 (iv)Expenses 1,350 1,350 1,350 1,350 (v) Income before taxes (iii)-(iv) 525 627 500 530 (vi) Income tax exp. (40%) [(v)*0.40] 210 251 200 212 (vii) Net income (v)-(vi) 315 376 300 318Related Questions
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