Question

The accounting records of Wall’s China Shop reflected the following balances as of January 1, Year 3: Cash $ 17,600 Beginning inventory 18,480 (210 @ $88) Common stock 14,400 Retained earnings 21,680 The following five transactions occurred in Year 3: First purchase (cash): 120 units @ $90 Second purchase (cash): 200 units @ $98 Sales (all cash): 360 units @ $198 Paid $16,650 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. 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