Exercise 6-4 Perpetual: Income effects of inventory methods LO A1 Required: The

Question

Exercise 6-4 Perpetual: Income effects of inventory methods LO A1

  

  
Required:

The Company uses a perpetual inventory system. For specific identification, ending inventory consists of 285 units, where 130 are from the January 30 purchase, 80 are from the January 20 purchase, and 75 are from beginning inventory.

  

Complete comparative income statements for the month of January for Laker Company for the four inventory methods. Assume expenses are $2,000, and that the applicable income tax rate is 35%. (Do not round your Intermediate calculations.)

Laker Company reported the following January purchases and sales data for its only product.

Explanation / Answer

Income statement

FIFO

cost of goods sold ( 190*7.80 + 105 *6.80 ) = $2196

LIFO = (130 *5.80 + 165 *6.80) = $1876

Specific = (115 *7.8 + 180 *6.8) = $2121

Average cost = 4004/580 *295 = $2037

FIFO LIFO SPECIFIC Average Sales 4661 4661 4661 4661 Less:COGS 2196 1876 2121 2037 Gross profit 2465 2785 2540 2624 Less: Expenses 2000 2000 2000 2000 Income 465 785 540 624 Tax 35% 162.75 274.75 189 218.40 Net income $302.25 510.25 351 405.60

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