Question

The accounting Teculus UI Alle misurull, Ill. Terecleu de IULIUWIIIg varices as Ul Jaliuary 1, Tea 2: Cash Beginning inventory Common stock Retained earnings $36,000 24,000 (200 units @ $120) 25,000 35,000 The following five transactions occurred in Year 2: 1. First purchase (cash) 130 units @ $124 2. Second purchase (cash) 220 units @ $128 3. Sales (all cash) 350 units @ $320 4. Paid $24,000 cash for operating expenses 5. Paid cash for income tax at the rate of 40 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 income tax expense for each method. b. Record the above transactions in general journal form and post to T-accounts assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted average cost flow. c. Use a vertical model to show the Year 2 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average.

Answer 1

Solution of the above problem is as under

Statement showing Cost of Ending Inventory and Cost of Goods Sold (COGS)
Event	Particulars	Quantity (in units)	Unit Cost ($)	Value ($)	Quantity Balance	Value Balance ($)
1	Beginning Inventory	200	120	24000	200 Units @ $120	24000
2	Cash Purchases	130	124	16120	200 Units @ $120 130 Units @ $124	40120
3	Cash Purchases	220	128	28160	200 Units @ $120 130 Units @ $124 220 Units @ $128	68280
	Total Units and Cost	550		68280
Note : Units Sold as given in Question 350 Units @ $320, Therefore Ending Inventory is (550-350) Units = 200 Units
a) 1) Computation of Cost of Ending Inventory and Cost of Goods Sold using FIFO Method
Cost of Ending Inventory (200 units) is:	200 Units @ $128	25600
Cost of Goods Sold (350 Units) is:	200 Units @ $120 130 Units @ $124 20 Units @ $128	42680
a) 2) Computation of Cost of Ending Inventory and Cost of Goods Sold using LIFO Method
Cost of Ending Inventory (200 units) is:	200 Units @ $120	24000
Cost of Goods Sold (350 Units) is:	220 Units @ $128 130 Units @ $124	44280
a) 3) Computation of Cost of Ending Inventory and Cost of Goods Sold using Weighted Average Cost Method
Weighted Average Cost per Unit:	[Total Cost/Total Units]	$    124.15
Cost of Ending Inventory (200 units) is:	200 Units X $ 124.15	24830
Cost of Goods Sold (350 Units) is:	350 Units X $ 124.15	43452.50

Statement showing Journal Entries of transactions occurred in Year-2
S.No	Account Titles	Debit ($)	Credit ($)
1	Inventory A/c Dr	16120
	To Cash A/c		16120
	(Being purchases made for cash)
2	Inventory A/c Dr	28160
	To Cash A/c
	(Being purchases made for cash)		28160
3	Cash A/c Dr	112000
	To Sales Revenue A/c		112000
	(Being sales made in cash)
3)a)	Cost of Goods Sold A/c Dr	42680
	To Inventory A/c		42680
	(Being COGS recorded of goods sold using FIFO)
3)b)	Cost of Goods Sold A/c Dr	44280
	To Inventory A/c		44280
	(Being COGS recorded of goods sold using LIFO)
3)c)	Cost of Goods Sold A/c Dr	43452.50
	To Inventory A/c		43452.5
	(Being COGS recorded of goods sold using Weighted Average Method)
4)	Operating Expenses A/c Dr	24000
	To Cash A/c		24000
	(Being operating expenses paid)
5)a)	Income Tax A/c Dr	18128
	To Cash A/c		18128
	(Being Income Tax Paid FIFO)
5)b)	Income Tax A/c Dr	17488
	To Cash A/c		17488
	(Being Income Tax Paid LIFO)
5)c)	Income Tax A/c Dr	17819
	To Cash A/c		17819
	(Being Income Tax Paid Weighted Average)

Income Statement using FIFO, LIFO and WEIGHTED AVERAGE COST FLOW
Particulars	FIFO	LIFO	Weighted Average Cost
	Amount ($)	Amount ($)	Amount ($)
Sales Revenue	112000	112000	112000
Less: Cost of Goods Sold	42680	44280	43452.50
Contribution Margin	69320	67720	68547.5
Less: Operating Expenses	24000	24000	24000
Operating Income	45320	43720	44547.5
Less: Income Tax Expense @ 40%	18128	17488	17819
Net Income (After Tax)	27192	26232	26728.5