Question

The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash Beginning inventory Common stock Retained earnings $20,000 19,995 (215 units @ $93) 15,000 24,995 The following five transactions occurred in Year 2: 1. First purchase (cash) 120 units @ $95 2. Second purchase (cash) 205 units @ $103 3. Sales (all cash) 365 units @ $190 4. Paid $13,800 cash for salaries expense 5. Pald 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 b. Use a vertical model to show the Year 2 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.) flow Complete this question by entering your answers in the tabs below.

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WALL'S CHINA SHOP Cost of Goods Sold and Ending Inventory Weighted FIFO LIFO Average $ 34,485$ 36,235$ 35,493 $ 18,025$ 16,275$ 17,017 Cost of Goods Sold Ending Inventory Working Note: Total Inventory in Hand Before Sale Transaction (215+120+205) 540 Units Sales 365 Units Inventory in Hand at the End (540-365) 175 Units In FIFO all the first received inventory is sold and last received inventory will be in hand. So, the inventory in hand would be of last lot i.e. purchased at $ 103 per unit. Hence value of inventory in hand can be arrived as (175 units x $ 103 = $ 18,025) In LIFO all the last received inventory is sold and first received inventory will be in hand. So, the inventory in hand would be of first lot i.e. Inventory at beginning is still on hand at $93 per unit. Hence value of inventory in hand can be arrived as (175 units X $ 93 = $ 16,275) in Weighted Average method the average price of the inventory in hand is arrived by multiplying the inventory units in hand with the average price calculated below. Hence value of inventory in hand can be arrived as (175 units x $97.24 = $ 17,017 Average Price of inventory = [(215*93)+(120*95)+(205*103)]/[215+120+205] = $ 52,510/540 units = $97.24 Cost of Goods Sold = Opening Inventory + Purchases - Ending Inventory Sales Cost of Goods Sold Gross Margin Salaries Expense Income before Tax Income Tax Net Income WALL'S CHINA SHOP Income Statement For the year ended December 31, Year 2 Weighted FIFO LIFO Average $ 69,350 $ 69,350 $ 69,350 $ (34,485) $ (36,235) $ (35,493) $ 34,865 $ 33,115$ 33,857 $ (13,800) $ (13,800) $ (13,800) $ 21,065 $ 19,315 $ 20,057 $ (5,266) $ (4,829) $ (5,014) $ 15,799 $ 14,486 $ 15,043

WALL'S CHINA SHOP Balance Sheet As of December 31, Year 2 Weighted Average FIFO LIFO Assets Cash (20000-(120*95)-(205*103)+(190*365)-13800+Income Tax] Inventory $ 37,768.75 $ 38,206 $ $ 18,025$ 16,275$ 38,021 17,017 $ 55,794 $ 54,481 $ 55,038 Total Assets Shareholder's Equity Common Stock Retained Earnings (Opening Bal + Net Income) $ 15,000 $ 15,000 $ $ 40,794 $ 39,481 $ 15,000 40,038 Total Shareholders Equity $ 55,794 $ 54,481 $ 55,038 WALL'S CHINA SHOP Statement of Cash Flows For the year ended December 31, Year 2 Weighted Average FIFO LIFO Cash Flows from Operating Activities Cash Receipts from Customers Cash Paid to Suppliers Cash Paid to Employees Cash Generated from Operations Income Tax Paid Net Cash Flows from Operating Activities Cash Flows from Investing Activities Cash Flows from Financing Activities Net Change in Cash Cash at Beginning Ending Cash Balance $ 69,350 $ 69,350 $ 69,350 $ (32,515) $ (32,515) $ (32,515) $ (13,800) $ (13,800) $ (13,800) $ 23,035$ 23,035$ 23,035 $ (5,266) $ (4,829) $ (5,014) $ 17,769 $ 18,206 $ 18,021 $ $ $ $ $ $ 17,769 $ 18,206 $ 18,021 $ 20,000 $ 20,000 $ 20,000 $ 37,769 $ 38,206 $ 38,021