Question

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

Cash	$	18,500
Beginning inventory		17,800		(200 @ $89)
Common stock		14,400
Retained earnings		21,900

The following five transactions occurred in Year 3:

1. First purchase (cash): 120 units @ $91
2. Second purchase (cash): 200 units @ $99
3. Sales (all cash): 350 units @ $195
4. Paid $13,700 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

Note:

1- Purchase of inventory on cash is affect assets account only, i.e.., Cash account decrease and Inventory account increase, net effect would be Zero.