Question

The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 3 $19,900 19,530 (210 0 593) 15, 400 24,030 Cash Beginning inventory Common stock Retained earnings The following five transactions occurred in Year 3: 1. First purchase (cash): 115 units o $95 2. Second purchase (cash): 195 units o $103 3. Sales (all cash): 355 units o $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 () 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

WEIGHTED AVERAGE FIFO LIFO Cost of good sold = Opening Stock + Purchases - Closing stock Opening Stock Purchases Closing Stock 33,545.00 19,530.00 31,010.00 16,995.00 35, 195.00 19,530.00 31,010.00 15,345.00 34.503.27 19,530.00 31.010.00 16,036.73 WALLS CHINA SHOP INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, YEAR 3 PARTICULARS SALES LESS COST OF GOODS SOLD GROSS PROFIT LESS SALARIES INCOME BEFORE TAX LESS: TAX @ 25% PROFIT AFTER TAX FIFO 67,450.00 33,545.00 33,905.00 14,600.00 19,305.00 4,826.25 14,478.75 LIFO 67,450.00 35,195.00 32,255.00 14,600.00 17,655.00 4,413.75 13,241.25 WEIGHTED AVERAGE 67,450.00 34,503.27 32,946.73 14,600.00 18,346.73 4,586.68 13,760.05

WALL'S CHINA SHOP BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31, YEAR 3 WEIGHTED AVERAGE FIFO LIFO PARTICULARS ASSETS CASH INVENTORY TOTAL 36,913.75 16,995.00 53,908.75 37,326.25 15,345.00 52,671.25 37,153.32 16,036.73 53,190.05 EQUITY AND LIABILITIES COMMON STOCK RETAINED EARNINGS CURRENT YEAR PROFIT TOTAL 15,400.00 24,030.00 14,478.75 53,908.75 15,400.00 24,030.00 13,241.25 52,671.25 15,400.00 24,030.00 13,760.05 53,190.05 WALL'S CHINA SHOP STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, YEAR 3 WEIGHTED AVERAGE FIFO LIFO PARTICULARS CASH FLOW FROM OPERATING ACTIVITIES CASH SALES PURCHASES PAYMENT OF SALARIES PAYMENT OF TAXES NET CASH FLOW FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES NET CHANGE IN CASH ADD: BEGINNING OF CASH & CASH EQUIVALENT ENDING CASH BALANCE 67,450.00 (31,010.00) (14,600.00) (4,826.25) 17,013.75 67,450.00 (31.010.00)| (14,600.00) 4,413.75) 17,426.25 67,450.00 (31,010.00) (14,600.00) (4,586.68) 17,013.75 19,900.00 36,913.75 17,426.25 19,900.00 37,326.25 17,253.32 19,900.00 37,153.32

Beginning inventory First Purchase Second purchase QTY 210.00 115.00 195.00 PRICE 93.00 95.00 103.00 AMOUNT 19,530.00 10,925.00 20,085.00 TOTAL 520.00 Sales 50,540.00 67,450.00 355.00 Closing Stock 190.00 FIFO COST 103.00 QTY 165.00 AMOUNT 16,995.00 QTY 165.00 LIFO COST 93.00 AMOUNT QTY 15,345.00 WEIGHTED AVG COST COST 165.00 97.19 AMOUNT 16,036.73

WORKING NOTE CLOSING CASH BALANCE FIFO LIFO OPENING 19900 PURCHASE 31,010.00 SALES 67,450.00 SALARIES 14600 TAX 4,826.25 19900 67450 WEIGHTE 31010 19900 14600 674501 4,413.75 31010 14600 4,586.68 87,350.00 50,436.25 50,023.75 50,196.68 87,350.00 37,326.25 87,350.00 37,153.32 CLOSING CASH 36,913.75