Question

The accounting records of Wall's China Shop reflected the following balances as of January 1, 2018: Cash Beginning inventory Common stock Retained earnings $18,800 19,360 (220 units @ $88) 14,500 23,660 The following five transactions occurred in 2018: 1. First purchase (cash) 120 units @ $90 2. Second purchase (cash) 195 units @ $98 3. Sales (all cash) 370 units @ $190 4. Paid $14,600 cash for salaries expense 5. Paid cash for income tax at the rate of 25 percent of income before taxes Required a. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted average cost flow. Compute the income tax expense for each method. b. Use a vertical model to show the 2018 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.) Complete this question by entering your answers in the tabs below. Reg A Req B1 Req B2 Reg B3 Use a vertical model to prepare the 2018 income statement under FIFO, LIFO, and weighted average. (Do not round intermediate calculations. Round your answers to nearest whole dollar amount.)

Answer 1

1.

Wall's China Shop Income Statements For the year ended December 31, 2018
	FIFO	LIFO	Weighted Average
Sales	$ 70,300	$ 70,300	$ 70,300
Cost of Goods Sold	33,100	34,750	34,074
Gross Margin	37,200	35,550	36,226
Salaries Expense	14,600	14,600	14,600
Income before tax	22,600	20,950	21,626
Income tax expense (25%)	5,650	5,238	5,407
Net income	16,950	15,712	16,218

2.

Wall's China Shop Balance Sheets December 31, 2018
	FIFO	LIFO	Weighted Average
Assets
Cash	$ 38,940	$ 39,352	$ 39,183
Inventory	16,170	14,520	15,195
Total Assets	55,110	53,872	54,378
Stockholders Equity
Common Stock	14,500	14,500	14,500
Retained Earnings	40,610	39,372	39,878
Total Stockholders Equity	55,110	53,872	54,378

3.

Wall's China Shop Statements of Cash Flows For the year ended December 31, 2018
	FIFO	LIFO	Weighted Average
Cash flows from operating activities
Cash inflow from customers	$ 70,300	$ 70,300	$ 70,300
Cash outflow for income tax	- 5,650	- 5,238	- 5,407
Cash outflow for inventory	-29,910	- 29,910	- 29,910
Cash outflows for salaries expense	- 14,600	- 14,600	- 14,600
Net cash flows from operating activities	20,140	20,552	20,383
Cash flows from investing activities	0	0	0
Cash flows from financing activities	0	0	0
Net change in cash	20,140	20,552	20,383
Beginning cash balance	18,800	18,800	18,800
Ending cash balance	38,940	39,352	39,183