Use the following information for the Exercises below The fo

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.

Solution

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