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Discuss income effects of inventory methods

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Exercise Perpetual: Income effects of inventory methods

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   350  units  @  $11.00 = $ 3,850          
  Jan. 10   Sales                 190  units    
  Jan. 20   Purchase   420  units  @  $10.00 =   4,200          
  Jan. 25   Sales                 345  units    
  Jan. 30   Purchase   290  units  @  $9.00 =   2,610          
                     
          Totals   1,060  units     $ 10,660   535  units    

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 525 units, where 290 are from the January 30 purchase, 80 are from the January 20 purchase, and 155 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 $3,600, and that the applicable income tax rate is 39%. (Do not round your Intermediate calculations.)

Laker Company Income statement For Month Ended January 31
Specific Weighted
Identification Average FIFO LIFO
Sales $10,165 $10,165 $10,165 $10,165
Cost of goods sold 5,545
Gross profit 4,620 10,165 10,165 10,165
Expenses 3,600 3,600 3,600 3,600
Income before taxes 1,020 6,565 6,565 6,565
Income tax expense 398
Net income $622 $6,565 $6,565

$6,565

Reference no: EM131793690

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