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

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

Cash $

19,000

Beginning inventory 18,245 (205 @ $89)
Common stock 14,600
Retained earnings

22,645


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): 355 units @ $186
  4. Paid $15,750 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 income statement under FIFO, LIFO, and weighted average. (Do not round intermediate calculations. Round your answers to nearest whole dollar amount.)

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. (Do not round intermediate calculations. Round your answers to nearest whole dollar amount.)

FIFO LIFO Weighted Average
Cost of goods sold
Ending inventory
WALL'S CHINA SHOP
Income Statements
For the Year Ended December 31, Year 3
FIFO LIFO Weighted Average
Salaries expense
Income before tax

Use a vertical model to prepare the Year 3 balance sheet under FIFO, LIFO, and weighted average. (Do not round intermediate calculations. Round your answers to nearest whole dollar amount.)

WALL'S CHINA SHOP
Balance Sheets
As of December 31, Year 3
FIFO LIFO Weighted Average
Assets
Total assets
Stockholders' equity
Total stockholders' equity

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
Cash flows from investing activities
Cash flows from financing activities
Net change in cash
Ending cash balance

Solutions

Expert Solution

FIFO Cost of Goods Available for sale
Activity Units Unit Price Amount
Beginning Inventory 205 $         89.00 $       18,245
Purchases
     First 120 $         91.00 $       10,920
     Second 200 $         99.00 $       19,800
Total 525 $       48,965

1.

FIFO LIFO W. Avg
Cost of Goods Sold $       32,135 $         33,835 $           33,109
Ending Inventory $       16,830 $         15,130 $           15,856


Ending Inventory
FIFO = 170 x $99 = $16830
LIFO = 170 x $89 = $15130
W. Avg = 170 x $93.27 = $15856

2.

Income Statement
FIFO LIFO W. Avg
Sales Revenue $       66,030 $         66,030 $           66,030
Cost of Goods Sold $       32,135 $         33,835 $           33,109
Gross Profit $       33,895 $         32,195 $           32,921
Salaries Expense $       15,750 $         15,750 $           15,750
Income before tax $       18,145 $         16,445 $           17,171
Income tax expense $          4,536 $           4,111 $              4,293
Net Income $       13,609 $         12,334 $           12,878

3.

Balance Sheet
FIFO LIFO W. Avg
Assets
Cash $       34,024 $         34,449 $           34,267
Inventory $       16,830 $         15,130 $           15,856
Total Assets $       50,854 $         49,579 $           50,123
Stockholders Equity
Common Stock $       14,600 $         14,600 $           14,600
Retained Earnings $       36,254 $         34,979 $           35,523
Total Stockholders Equity $       50,854 $         49,579 $           50,123

4.

Cash Flow Statement
FIFO LIFO W. Avg
Cash Flow from Operating Activities
Net Income $       13,609 $         12,334 $           12,878
Decrease in Inventory $          1,415 $           3,115 $              2,389
Net Cash Flows from operating activities $       15,024 $         15,449 $           15,267
Cash flows from investing activities $                -   $                  -   $                    -  
Cash flows from financing activities $                -   $                  -   $                    -  
Net Change in cash $       15,024 $         15,449 $           15,267
Beginning Cash balance $       19,000 $         19,000 $           19,000
Ending Cash balance $       34,024 $         34,449 $           34,267

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