Question

The accounting records of Wall’s China Shop reflected the following balances as of January 1, Year 2:

Cash	$	17,000
Beginning inventory		20,680		(220 units @ $94)
Common stock		15,800
Retained earnings		21,880

The following five transactions occurred in Year 2:

1. First purchase (cash) 120 units @ $96
2. Second purchase (cash) 200 units @ $104
3. Sales (all cash) 370 units @ $190
4. Paid $15,250 cash for salaries expense
5. Paid cash for income tax at the rate of 25 percent of income before taxes

Required

1. Compute the cost of goods sold and ending inventory, assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow.
2. 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.)

Answer 1

1. FIFO -

FIFO Cost of Good Sold Units Rate Cost Purchase Rate Date Units Cost Units Jan 1 220 Balance Rate Cost $ 94 $ 20,680 $ 95 $ 32,200 $ 98 $ 53,000 1 120 340 $ $ 96 $ 11,520 104 $ 20,800 2 200 540 220 3 120 $ $ $ 94 $ 20,680 96 $ 11,520 104$ 3,120 170 $ 104 $ 17,680 30 320 $ 101 $ 32,320 370 $ $ 95 $35,320 170 $ 104 $ 17,680

2. LIFO -

LIFO Cost of Good Sold Units Rate Cost Purchase Rate Date Units Cost Units Jan 1 220 Balance Rate Cost $ 94 $ 20,680 $ 95 $ 32,200 $ 98 $ 53,000 1 120 340 $ $ 96 $ 11,520 104 $ 20,800 2 200 540 200 3 120 $ $ $ 104 $ 20,800 96 $ 11,520 94 $ 4,700 170 $ 94 $ 15,980 50 320 $ 101 $ 32,320 370 $ $ 100 $ 37,020 170 $ 94 $ 15,980

3. Weighted Average Cost -

Purchase Weighted Average Cost Cost of Good Sold Units Rate Cost Date Units Rate Cost Units 220 Jan 1 Balance Rate Cost $ 94 $ 20,680 $ 95 $ 32,200 $ 98 $ 53,000 $ 98 $ 16,685 1 120 340 $ $ 96 $ 11,520 104 $ 20,800 2 200 540 3 370 $ 98 $ 36,315 170 320 $ 101 $ 32,320 370 $ 98 $ 36,315 170 $ $ 98 $ 16,685

4. Accounting Equation - FIFO -

Date Cash + Inventory Accounting Equation - FIFO Common Retained Stock Earnings $ 15,800 $ 21,880 + Revenue Expenses Net Income Jan 1 1 $ 17,000 $(11,520) $(20,800) $ 70,300 $ 20,680 $ 11,520 $ 20,800 2 3.1 $ 70,300 3.2 $(35,320) $ 70,300 $ (35,320) $ (15,250) $ (4,933) 4 $ 35,320 $ 15,250 $ 4,933 $(15,250) $ (4,933) 5 $ 34,798 + $ 17,680 $ 15,800 + $ 21,880 $ 70,300 $ 55,503 $ 14,798

5. Accounting Equation - LIFO -

Date Cash + Inventory Accounting Equation - LIFO Common Retained Stock Earnings $ 15,800 $ 21,880 + Revenue Expenses = Net Income Jan 1 1 $ 17,000 $(11,520) $(20,800) $ 70,300 $ 20,680 $ 11,520 $ 20,800 2 3.1 $ 70,300 $(37,020) 3.2 4. $ 70,300 $ (37,020) $ (15,250) $ (4,508) $ 37,020 $ 15,250 $ 4,508 $(15,250) $ (4,508) 5 $ 35,223 + $ 15,980 $ 15,800 + $ 21,880 $ 70,300 $ 56,778 $ 13,523

6. Accounting Equation - Weighted Average -

Date Cash + Inventory Accounting Equation - Weighted Average Common Retained Revenue Stock Earnings $ 15,800 $ 21,880 + Expenses = Net Income Jan 1 1 $ 17,000 $(11,520) $(20,800) $ 70,300 $ 20,680 $ 11,520 $ 20,800 2 3.1 $ 70,300 $(36,315) 3.2 4. $ 70,300 $ (36,315) $ (15,250) $ (4,684) $36,315 $ 15,250 $ 4,684 $(15,250) $ (4,684) 5 $ 35,046 + $ 16,685 = $ 15,800 + $ 21,880 $ 70,300 $ 56,249 $ 14,051