Question

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

Cash	$	19,800
Beginning inventory		19,360		(220 @ $88)
Common stock		14,300
Retained earnings		24,860

The following five transactions occurred in Year 3:

1. First purchase (cash): 115 units @ $90
2. Second purchase (cash): 205 units @ $98
3. Sales (all cash): 365 units @ $198
4. Paid $13,500 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 $32,650 $34,400 ? Ending inventory $17,150 $15,400 ?

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 Sales $72,270 $72,270 $72,270 Cost of goods sold Gross margin Salaries expense 13,500 13,500 13,500 Income before tax (13,500) (13,500) (13,500) Income tax expenses Net income

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 $0 $0 $0 Stockholders' equity Total stockholders' equity $0 $0 $0

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 0 0 0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 0 0 Ending cash balance $0 $0 $0

Answer 1

Method	First in First out				Perodic Inventory System
date	Goods Available for sale			Cost of goods sold			Ending inventory
	Unit	unit cost	value	Unit	unit cost	value	Unit	unit cost	value
Beginning	220	88	19,360	220	88	19,360
Purchase	115	90	10,350	115	90	10,350
Purchase	205	98	20,090	30	98	2,940	175	98	17,150
Total	540		49,800	365		32,650	175		17,150
Method	Last in First out				Perodic Inventory System
date	Goods Available for sale			Cost of goods sold			Ending inventory
	Unit	unit cost	value	Unit	unit cost	value	Unit	unit cost	value
Beginning	220	88	19,360	45	88	3,960	175	88	15,400
Purchase	115	90	10,350	115	90	10,350
Purchase	205	98	20,090	205	98	20,090
Total	540		49,800	365		34,400	175		15,400

Method	Weighted Avearge (Perodic Inventory System)
date	goods Available for sale
	Unit	unit cost	value
Beginning	220	88	19,360
Purchase	115	90	10,350
Purchase	205	98	20,090
Total	540		49,800
Cost of Goods Available for sale			49,800
Divided by: Units Available for sale			540
Weighted Avearge cost per unit			92.22
Cost of goods sold	365	92.2222	33,661
Ending inventory	175	92.2222	16,139

Summary of answer
Perodic Inventory System	First in First out	Last in First out	Weighted Avearge
Cost of goods sold	32,650	34,400	33,661
Ending inventory	17,150	15,400	16,139
Cost of Goods Available for sale	49,800	49,800	49,800

Inventory method (FIFO)
Transaction	Balance sheet					Income statement			Cash flow statement
	Assets		Liability	Stockholder's equity		Revenue	Expense	Net income
	Cash	Inventory	Account payable	Common stock	Retained earnings				Amount	Type
Beg. Bal	19,800	19,360		14,300	24,860			-		Beg. Cash
First Purchase	(10,350)	10,350			-			-	(10,350)	Operating
Second Purchase	(20,090)	20,090			-			-	(20,090)	Operating
Sales	72,270				72,270	72,270		72,270	72,270	Operating
Cost of Good sold		(32,650)			(32,650)		32,650	(32,650)
Salary expense paid	(13,500)				(13,500)		13,500	(13,500)	(13,500)	Operating
Income before Tax								26,120
Tax paid @ 25%	(6,530)				(6,530)		6,530	(6,530)	(6,530)	Operating
End Bal	41,600	17,150	-	14,300	44,450	72,270	52,680	19,590		End. Cash
Inventory method (LIFO)
Transaction	Balance sheet					Income statement			Cash flow statement
	Assets		Liability	Stockholder's equity		Revenue	Expense	Net income
	Cash	Inventory	Account payable	Common stock	Retained earnings				Amount	Type
Beg. Bal	19,800	19,360		14,300	24,860			-		Beg. Cash
First Purchase	(10,350)	10,350			-			-	(10,350)	Operating
Second Purchase	(20,090)	20,090			-			-	(20,090)	Operating
Sales	72,270				72,270	72,270		72,270	72,270	Operating
Cost of Good sold		(34,400)			(34,400)		34,400	(34,400)
Salary expense paid	(13,500)				(13,500)		13,500	(13,500)	(13,500)	Operating
Income before Tax								24,370
Tax paid @ 25%	(6,093)				(6,093)		6,093	(6,093)	(6,093)	Operating
End Bal	42,038	15,400	-	14,300	43,138	72,270	53,993	18,278		End. Cash
Inventory method (Weighted Avearge)
Transaction	Balance sheet					Income statement			Cash flow statement
	Assets		Liability	Stockholder's equity		Revenue	Expense	Net income
	Cash	Inventory	Account payable	Common stock	Retained earnings				Amount	Type
Beg. Bal	19,800	19,360		14,300	24,860			-		Beg. Cash
First Purchase	(10,350)	10,350			-			-	(10,350)	Operating
Second Purchase	(20,090)	20,090			-			-	(20,090)	Operating
Sales	72,270				72,270	72,270		72,270	72,270	Operating
Cost of Good sold		(33,661)			(33,661)		33,661	(33,661)
Salary expense paid	(13,500)				(13,500)		13,500	(13,500)	(13,500)	Operating
Income before Tax								25,109
Tax paid @ 25%	(6,277)				(6,277)		6,277	(6,277)	(6,277)	Operating
End Bal	41,853	16,139	-	14,300	43,692	72,270	53,438	18,832		End. Cash

WALL'S CHINA SHOP
Income Statements
For the Year Ended December 31, Year 3
	FIFO	LIFO	Weighted Average
Sales	$        72,270	$        72,270	$        72,270
Cost of goods sold	$        32,650	$        34,400	$        33,661
Gross margin	$        39,620	$        37,870	$        38,609
Salaries expense	$        13,500	$        13,500	$        13,500
Income before tax	$        26,120	$        24,370	$        25,109
Income tax expenses @ 25%	$          6,530	$          6,093	$          6,277
Net income	$        19,590	$        18,278	$        18,832

WALL'S CHINA SHOP
Balance Sheets
As of December 31, Year 3
	FIFO	LIFO	Weighted Average
Assets
Cash	$        41,600	$        42,038	$        41,853
Inventory	$        17,150	$        15,400	$        16,139
Total assets	$        58,750	$        57,438	$        57,992
Stockholders' equity
Common Stock	$        14,300	$        14,300	$        14,300
Retained earnings	$        44,450	$        43,138	$        43,692
Total stockholders' equity	$        58,750	$        57,438	$        57,992

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	$         72,270	$         72,270	$         72,270
Less: Inventory Purcahse (10350+20090)	$       (30,440)	$       (30,440)	$       (30,440)
Less: Salary paid	$       (13,500)	$       (13,500)	$       (13,500)
Less: Income Tax paid	$         (6,530)	$         (6,093)	$         (6,277)
Net cash flows from operating activities	$         21,800	$         22,238	$         22,053
Cash flows from investing activities
Cash flows from financing activities
Net change in cash	$         21,800	$         22,238	$         22,053
Add: Beginning cash Balance	$         19,800	$         19,800	$         19,800
Ending cash balance	$         41,600	$         42,038	$         41,853