Question

The accounting records of Wall’s China Shop reflected the following balances as of January 1, Year 3:

Cash	$	17,700
Beginning inventory		20,680		(220 @ $94)
Common stock		14,700
Retained earnings		23,680

The following five transactions occurred in Year 3:

1. First purchase (cash): 125 units @ $96
2. Second purchase (cash): 195 units @ $104
3. Sales (all cash): 375 units @ $200
4. Paid $16,100 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 Year 3 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

Method	First in First out				Periodic Inventory System
date	Goods Available for sale			Cost of goods sold			Ending inventory
	Unit	unit cost	value	Unit	unit cost	value	Unit	unit cost	value
Beginning	220	94	20,680	220	94	20,680
Purchase	125	96	12,000	125	96	12,000
Purchase	195	104	20,280	30	104	3,120	165	104	17,160
Total	540		52,960	375		35,800	165		17,160
Method	Last in First out				Periodic Inventory System
date	Goods Available for sale			Cost of goods sold			Ending inventory
	Unit	unit cost	value	Unit	unit cost	value	Unit	unit cost	value
Beginning	220	94	20,680	55	94	5,170	165	94	15,510
Purchase	125	96	12,000	125	96	12,000
Purchase	195	104	20,280	195	104	20,280
Total	540		52,960	375		37,450	165		15,510

Method	Weighted Average
date	Goods Available for sale
	Unit	unit cost	value
Beginning	220	94	20,680
Purchase	125	96	12,000
Purchase	195	104	20,280
Total	540		52,960
Cost of Goods Available for sale			52,960
Divided by: Units Available for sale			540
Weighted Average cost per unit			98.07
Cost of goods sold	375	98.07	36,778
Ending inventory	165	98.07	16,182

Income statement
Method	First in First out	Last in First out	Weighted Average
Sales revenue (375*200)	75,000	75,000	75,000
Less: Cost of Goods sold	35,800	37,450	36,778
Gross Profit	39,200	37,550	38,222
Less: Salaries expense	16,100	16,100	16,100
Income before tax	23,100	21,450	22,122
Less: Tax Expense @ 25%	5,775	5,363	5,531
Net income	17,325	16,088	16,592

Home ert Page Layout Formulas Data Review V ア23 Z1 First in First out Balance Sheet Income statement Cash Flow statemen Stockholder's equity Common stock Retained earnings Assets Liabilities Event Revenue Expense Amount Activity Cash Inventory Beg. Bal 7,0020,680 1 (12,000) 12,000 2 (20,20) 20,280 3 75,000 35,800) income 17,700 Beg, Cash (12,000) Operating (20,280) Operating 39,200 75,000 35,800 39,200 75,000 Operating 16,100 (16,100) (16,100) Operating 5,775 (5,775) (5,775) Operating 41,005 75,000 57,675 17,325 38,545 End. Cash 14,700 23,680 (16,100) (5,775) 10 (5,775) End. Bal 38,545 17,160 14,700 12 13 14 15 16 17 18 19 20 21 Last in First out Balance Sheet Income statement Cash Flow statement Stockholder's equity Common stock Retained earnings Assets Liabilities Event Revenue Expense Vet income Amount Activity Cash Inventory Beg. Bal 7,0020,680 1 12,000) 12,000 20,280 20,280 75,000 (37,450) 14,700 17,700 Beg. Cash (12,000) Operating 20,280) Operating 37,550 75,000 37450 37,550 75,000 Operating 16,100 (16,100) (16,100) Operating 5,363 5,363) 5,363) Operating 39,768 75,000 58,913 16,088 38,958 End. Cash 23,680 4(16,100) (5,363) (16,100) 5,363) End. Bal 38,958 15,510 23 24 " . H-sheets Sheets Sheet? Sheets. Sheetg. Sheet10 Sheet1 1 Sheet12 Sheet13 Sheet 14. 14,700 Activate Windbws Ready I 12096 Search the web and Windows ^ 18-03-19

Home ert Page Layout Formulas Data Review V 240 17 18 19 20 21 Beg. Ba17,700 20,680 14,700 17,700 Beg. Cash (12,000) Operating (20,280) Operating 37,550 75,000 37,450 37,550 75,000 Operating 16,100 16,100 (16,100) Operating 5,363 (5,363) (5,363) Operating 39,768 75,000 58,913 16,088 38,958 End. Cash 23,680 (12,000) 12,000 (20,280 20,280 75,000 (37,450) 16,100) (16,100) (5,363) (5,363) End. Ba 38,958 15,510 23 24 25 26 27 28 29 30 31 32 14,700 Weighted Average Balance Sheet Income statement Cash Flow statement Liabilities Stockholder's equity Common stock Retained earnings Event Revenue Expense Vet income Amount Activity Cash Inventory Beg. Ba17,700 20,680 12,000 12,000 (20,280 20,280 14,700 17,700 Beg. Cash 12,000) Operating (20,280) Operating 38,222 75,000 36,778 38,222 75,000 Operating 16,100 (16,100 (16,100) Operating 5,5315,53 (5,531 Operating 40,272 75,000 58,408 16,592 38,789 End. Cash 23,680 75,000 (36,778) (16,100) (5,531) (16,100) (5,531) 35 36 37 38 39 40 :4 トト , SheetS . Sheet6. Sheet? . SheetB . Sheetg. Sheet10 . Sheet11 Sheet12 Sheet13 Sheet14 Ready End. Bal 38,789 16,182 14,700 vate WindowS 12096 Search the web and Windows 18-03-19

Balance sheet
Method	First in First out	Last in First out	Weighted Average
Assets
Cash	38,545	38,958	38,789
Inventory	17,160	15,510	16,182
Total Assets	55,705	54,468	54,972
Liabilities and Stockholder's equity
Common stock	14,700	14,700	14,700
Retained earnings	41,005	39,768	40,272
Total Liabilities and Stockholder's equity	55,705	54,468	54,972

Cash flow statement
Method	First in First out	Last in First out	Weighted Average
Cash flow from operating activity
Cash received from customer	75,000	75,000	75,000
Cash Paid to supplier	(32,280)	(32,280)	(32,280)
Salaries paid	(16,100)	(16,100)	(16,100)
Tax paid	(5,775)	(5,363)	(5,531)
Cash flow Provided by operating activity	20,845	21,258	21,089
Cash flow from Investing activity
Cash flow from financing activity
Net Change in cash	20,845	21,258	21,089
Add: Beginning Cash Balance	17,700	17,700	17,700
Ending Cash Balance	38,545	38,958	38,789