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Financial & Managerial Accounting
Found in: Page 262
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Use the data in Exercise 5-3 to prepare comparative income statements for the month of January for Laker Company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250 and that the applicable income tax rate is 40%. (Round amounts to cents.)

2. Does net income using weighted average fall above, between, or below that using FIFO and LIFO?

Net income under the weighted average method falls between the net income calculated under LIFO and FIFO methods.

See the step by step solution

Step by Step Solution

Definition of Operating Profit

Operating Profit is defined as the benefits generated solely from the basic business function. It is used to calculate the net income of the business entity.

Calculation of Net income under each method

Net income under FIFO is lower than calculated under weighted average, while net income under LIFO is higher than net income under specific identification.

Particular

Specific Identification Method

Weighted Average Method

FIFO

LIFO

Sales

$2,700

$2,700

$2,700

$2,700

Less: Cost of goods sold

(1,025)

(1,032)

(1,040)

(1,020)

Gross profit

$1,675

$1,668

$1,660

$1,680

Less: Expenses

(1,250)

(1,250)

(1,250)

(1,250)

Operating profit

$425

$418

$410

$430

Less: 40% income tax

(170)

(167.20)

(164)

(172)

Net income

$255

$250.80

$246

$258

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