Question

The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash $ 18,500 Beginning inventory 13,800 (150 units @ $92) Common stock 15,000 Retained earnings 17,300 The following five transactions occurred in Year 2: First purchase (cash) 120 units @ $94 Second purchase (cash) 200 units @ $102 Sales (all cash) 425 units @ $186 Paid $15,650 cash for salaries expenses. Paid cash for income tax at the rate of 40 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. Record the above transactions in general journal form and post to T-accounts assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow. Assume perpetual inventory system is used. 1. FIFO 2. LIFO 3. Weighted Average c. Use a vertical model to show the Year 2 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average.

Answer 1

	Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
	Part a:
		Quantity	Rate	Total Cost
	Beginning Inventory	150	$92	$13,800
	First Purchase	120	$94	$11,280
	Second Purchase	200	$102	$20,400
	Sale:					Ending Inventory:
	FIFO					FIFO
	Beginning Inventory	150	$92	$13,800
	First Purchase	120	$94	$11,280
	Second Purchase	155	$102	$15,810		45	$102	$4,590
	Cost of Goods Sold			$40,890				$4,590
	LIFO					LIFO
	Second Purchase	200	$102	$20,400
	First Purchase	120	$94	$11,280
	Beginning Inventory	105	$92	$9,660		45	$92	$4,140
	Cost of Goods Sold			$41,340				$4,140
	Weighted Average
		Quantity	Rate	Total Cost		Weighted Average
	Beginning Inventory	150	$92	$13,800
	First Purchase	120	$94	$11,280
	Second Purchase	200	$102	$20,400		45	$96.77	$4,354
	Total	470		$45,480				$4,354
	Weighted Average Rate	45480/470	$96.77
	Cost of Goods Sold	425*96.77	$41,126
	Part b: General Journal
		FIFO		LIFO		Weighted Average		Cash Flow
Event	Account	Debit	Credit	Debit	Credit	Debit	Credit
1	Merchandise Inventory	$11,280		$11,280		$11,280
1	Cash		$11,280		$11,280		$11,280	Inventory
2	Merchandise Inventory	$20,400		$20,400		$20,400
2	Cash		$20,400		$20,400		$20,400	Inventory
3a	Cash	$79,050		$79,050		$79,050		Customer
3a	Sales Revenue		$79,050		$79,050		$79,050
3b	Cost of Goods Sold	$40,890		$41,340		$41,126
3b	Merchandise Inventory		$40,890		$41,340		$41,126
4	Salaries Expense	$15,650		$15,650		$15,650
4	Cash		$15,650		$15,650		$15,650	Salaries
5	Income Tax Expense	$9,004		$8,824		$8,910
5	Cash		$9,004		$8,824		$8,910	Income Tax
	Ledger Posting:
Cash-FIFO					Cash-LIFO					Cash-WA
Debit		Credit			Debit		Credit			Debit		Credit
Beginning	18500				Beginning	18500				Beginning	18500
3a	79050	1	11280		3a	79050	1	11280		3a	79050	1	11280
		2	20400				2	20400				2	20400
		4	15650				4	15650				4	15650
		5	9004				5	8824				5	8910
Ending	41216				Ending	41396				Ending	41310
Merchandise Inventory-FIFO					Merchandise Inventory-LIFO					Merchandise Inventory-WA
Debit		Credit			Debit		Credit			Debit		Credit
Beg	13800				Beg	13800				Beg	13800
1	11280	3b	40890		1	11280	3b	41340		1	11280	3b	41126
2	20400				2	20400				2	20400
Ending	4590				Ending	4140				Ending	4354
Sales-FIFO					Sales-LIFO					Sales-WA
Debit		Credit			Debit		Credit			Debit		Credit
		3a	79050				3a	79050				3a	79050
COGS-FIFO					COGS-LIFO					COGS-WA
Debit		Credit			Debit		Credit			Debit		Credit
3b	40890				3b	41340				3b	41126
Salaries Expense-FIFO					Salaries Expense-LIFO					Salaries Expense-WA
Debit		Credit			Debit		Credit			Debit		Credit
4	15650				4	15650				4	15650
Income Tax Expense-FIFO					Income Tax Expense-LIFO					Income Tax Expense-WA
Debit		Credit			Debit		Credit			Debit		Credit
5	9004				5	8824				5	8910
	Income Statement:
			FIFO	LIFO	WA
	Sales		$79,050	$79,050	$79,050
	Cost of Goods Sold		-$40,890	-$41,340	-$41,126
	Gross Margin		$38,160	$37,710	$37,924
	Salaries Expense		-$15,650	-$15,650	-$15,650
	Income before tax		$22,510	$22,060	$22,274
	Income Tax Expense	40%	-$9,004	-$8,824	-$8,910
	Net Income		$13,506	$13,236	$13,365
	Balance Sheet:
			FIFO	LIFO	WA
	Asset
	Cash		$41,216	$41,396	$41,310
	Inventory		$4,590	$4,140	$4,354
	Total Assets		$45,806	$45,536	$45,664
	Stockholder Equity
	Common Stock		$15,000	$15,000	$15,000
	Retained Earning		$30,806	$30,536	$30,665	17300+NI
	Total Stockholder Equity		$45,806	$45,536	$45,664
	Cash Flow:
			FIFO	LIFO	WA
	Cash flow from operating activities:
	Cash inflow from customers		$         79,050	$         79,050	$         79,050
	Cash outflow for income tax		$         -9,004	$         -8,824	$         -8,910
	Cash outflow for inventory		$       -31,680	$       -31,680	$       -31,680
	Cash outflow for Salaries Expense		$       -15,650	$       -15,650	$       -15,650
	Net Cash flor from operating activities:		$         22,716	$         22,896	$         22,810
	Cash flow from investing activities		$                  -	$                  -	$                  -
	Cash flow from Financing activities		$                  -	$                  -	$                  -
	Net Change in Cash		$         22,716	$         22,896	$         22,810
	add:Beginning Cash Balance		$         18,500	$         18,500	$         18,500
	Ending Cash Balance		$         41,216	$         41,396	$         41,310