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.)

Use a vertical model to prepare the Year 3 statement of cash flows under FIFO, LIFO, and weighted average. (Do not round intermediate calculations. Round your answers to nearest whole dollar amount. Amounts to be deducted should be indicated with a minus sign.)

	WALL'S CHINA SHOP Statements of Cash Flows For the Year Ended December 31, Year 3 FIFO LIFO Weighted Average Cash flows from operating activities Net cash flows from operating activities 0 0 0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 0 0 Ending cash balance $0 $0 $0

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

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