Question

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

Cash	$	19,800
Beginning inventory		19,270		(205 @ $94)
Common stock		14,400
Retained earnings		24,670

The following five transactions occurred in Year 3:

1. First purchase (cash): 115 units @ $96
2. Second purchase (cash): 200 units @ $104
3. Sales (all cash): 350 units @ $195
4. Paid $14,500 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.)

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

	FIFO LIFO Weighted Average Cost of goods sold Ending inventory

Required B1

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.)

	WALL'S CHINA SHOP Income Statements For the Year Ended December 31, Year 3 FIFO LIFO Weighted Average Salaries expense Income before tax

Required B2

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

Required B3

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

Answer 1

Inventory account:
Opening balance	205 @ 94	19270
Purchases:
Cash	115 @ 96	11040
	200 @ 104	20800
Total purchases		31840
Total inventory	520	51110
Average cost		98.28846
Sales	350
Closing Inventory	170 units
Expenses (salary)	14500

FIFO = 170*104 = 17680
LIFO = 170*94 = 15980
WA = 170 * 98.28846 = 16709
COGS:
FIFO = 51110 - 17680 = 33430
LIFO = 51110 - 15980 = 35130
WA = 51110 - 16709 = 34401
Accounting Equations:
FIFO:
	Cash	Inventory	=	CS	RE
	19800	19270	=	14400	24670
Purchases	-11040	11040	=
Purchases	-20800	20800	=
Sales (350*195)	68250		=		68250
COGS		-33430	=		-33430
Salaries paid	-14500		=		-14500
Income tax paid (Sales - COGS - Salaries) *25%	-5080		=		-5080
Balance	36630	17680	=	14400	39910
LIFO:
	Cash	Inventory	=	CS	RE
	19800	19270	=	14400	24670
Purchases	-11040	11040	=
Purchases	-20800	20800	=
Sales	68250		=		68250
COGS		-35130	=		-35130
Salaries paid	-14500		=		-14500
Income tax paid	-4655		=		-4655
Balance	37055	15980	=	14400	38635
WAM:
	Cash	Inventory	=	CS	RE
	19800	19270	=	14400	24670
Purchases	-11040	11040	=
Purchases	-20800	20800	=
Sales	68250		=		68250
COGS		-34401	=		-34401
Salaries paid	-14500		=		-14500
Income tax paid	-4837		=		-4837
Balance	36873	16709	=	14400	39182

Income Statement:
	FIFO	LIFO	WAM
Sales	68250	68250	68250
Less:COGS	-33430	-35130	-34401
Gross profit	34820	33120	33849
Salaries paid	-14500	-14500	-14500
Income before tax	20320	18620	19349
Less: Tax	5080	4655	4837
Net Income	15240	13965	14512
Balance Sheet:
Assets:	FIFO	LIFO	WAM
Cash	36630	37055	36873
Inventory	17680	15980	16709
Total Assets	54310	53035	53582
Liabilities:
Com Stock	14400	14400	14400
Ret. Earnings	39910	38635	39182
total Liabilities	54310	53035	53582
Cash Flow Statement:
	FIFO	LIFO	WAM
Cash Op Balance	19800	19800	19800
Purchases	-11040	-11040	-11040
Purchases	-20800	-20800	-20800
Sales	68250	68250	68250
Salaries paid	-14500	-14500	-14500
Income tax paid	-5080	-4655	-4837
Cash Cl Balance	36630	37055	36873

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