Question

The accounting records of Wall’s China Shop reflected the following balances as of January 1, Year 3: Cash $ 19,900 Beginning inventory 18,000 (200 @ $90) Common stock 15,000 Retained earnings 22,900 The following five transactions occurred in Year 3: First purchase (cash): 120 units @ $92 Second purchase (cash): 200 units @ $100 Sales (all cash): 350 units @ $190 Paid $13,950 cash for salaries expense 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-1. Use a vertical model to show the Year 3 income statement under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.) b-2. Use a vertical model to show the Year 3 balance sheet under FIFO, LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.) b-3. Use a vertical model to show the Year 3 statement of cash flows under FIFO, LIFO, and weighted average.

Answer 1

Part 1

Part 2

Part 3

WALL'S CHINA SHOP
Income Statements
For the Year Ended December 31, Year 3
	FIFO	LIFO	Weighted Average
Sales	$        66,500	$        66,500	$        66,500
Cost of goods sold	$        32,040	$        33,740	$        33,008
Gross margin	$        34,460	$        32,760	$        33,492
Salaries expense	$        13,950	$        13,950	$        13,950
Income before tax	$        20,510	$        18,810	$        19,542
Income tax expenses @ 25%	$          5,128	$          4,703	$          4,886
Net income	$        15,383	$        14,108	$        14,657

Part 4

WALL'S CHINA SHOP
Balance Sheets
As of December 31, Year 3
	FIFO	LIFO	Weighted Average
Assets
Cash	$        36,283	$        36,708	$        36,525
Inventory	$        17,000	$        15,300	$        16,032
Total assets	$        53,283	$        52,008	$        52,557
Stockholders' equity
Common Stock	$        15,000	$        15,000	$        15,000
Retained earnings	$        38,283	$        37,008	$        37,557
Total stockholders' equity	$        53,283	$        52,008	$        52,557

Part 5

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
Cash flow from customer	$         66,500	$         66,500	$         66,500
Less: Inventory Purcahse (11040+20000)	$       (31,040)	$       (31,040)	$       (31,040)
Less: Salary paid	$       (13,950)	$       (13,950)	$       (13,950)
Less: Income Tax paid	$         (5,128)	$         (4,703)	$         (4,886)
Net cash flows from operating activities	$         16,383	$         16,808	$         16,625
Cash flows from investing activities
Cash flows from financing activities
Net change in cash	$         16,383	$         16,808	$         16,625
Add: Beginning cash Balance	$         19,900	$         19,900	$         19,900
Ending cash balance	$         36,283	$         36,708	$         36,525