**The Brick Company Financial Analysis***Scenario Overview:*The Brick Company had cash sales of $221,600 for Year 1, its first year of operation. On April 2, the company purchased 227 units of inventory at $190 per unit. On September 1, an additional 170 units were purchased for $209 per unit. The company had 49 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions.*Required Analysis:*a. The preceding paragraph describes five accounting events: 1. A sales transaction.2. The first purchase of inventory.3. A second purchase of inventory.4. The recognition of the cost of goods sold expense.5. The payment of income tax expense.Show the amounts of each event in horizontal statements models, assuming first a FIFO (First-In, First-Out) and then a LIFO (Last-In, First-Out) cost flow.b. Compute net income using FIFO.c. Compute net income using LIFO.d. Determine which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet.*Input Directions:*Complete this question by entering your answers in the tabs provided.*Financial Statement Panels:*The financial effects of each event are shown in two panels:- **Panel 1: FIFO Cost Flow**- **Panel 2: LIFO Cost Flow**These panels display the impact on:- Balance Sheet: - Cash - Inventory - Retained Earnings- Income Statement: - Revenue - Expenses - Net Income- Statement of Cash Flows: - Use OA for operating activity*Note:* Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input. The ending balances for cash, inventory, retained earnings, and net income should be calculated based on the entries.Input these calculations and analyze which inventory method produces greater asset values on the balance sheet.

Fifo Method assumes that units purchased first should be used first to make sales hence item in…

a. The preceding paragraph describes five accounting events: (1) a sales transaction, (2) the first purchase of Inventory. (3) a second purchase of Inventory, (4) the recognition of cost of goods sold expense, and (5) the payment of Income tax expense. Show the amounts of each event in horizontal statements models, assuming first a FIFO and then a LIFO cost flow. b. Compute net Income using FIFO. c. Compute net Income using LIFO. e. Which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet?

a. The preceding paragraph describes five accounting events: (1) a sales transaction, (2) the first purchase of Inventory. (3) a second purchase of Inventory, (4) the recognition of cost of goods sold expense, and (5) the payment of Income tax expense. Show the amounts of each event in horizontal statements models, assuming first a FIFO and then a LIFO cost flow. b. Compute net Income using FIFO. c. Compute net Income using LIFO. e. Which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

**The Brick Company Financial Analysis**

*Scenario Overview:*

The Brick Company had cash sales of $221,600 for Year 1, its first year of operation. On April 2, the company purchased 227 units of inventory at $190 per unit. On September 1, an additional 170 units were purchased for $209 per unit. The company had 49 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions.

*Required Analysis:*

a. The preceding paragraph describes five accounting events:

1. A sales transaction.
2. The first purchase of inventory.
3. A second purchase of inventory.
4. The recognition of the cost of goods sold expense.
5. The payment of income tax expense.

Show the amounts of each event in horizontal statements models, assuming first a FIFO (First-In, First-Out) and then a LIFO (Last-In, First-Out) cost flow.

b. Compute net income using FIFO.

c. Compute net income using LIFO.

d. Determine which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet.

*Input Directions:*

Complete this question by entering your answers in the tabs provided.

*Financial Statement Panels:*

The financial effects of each event are shown in two panels:

- **Panel 1: FIFO Cost Flow**
- **Panel 2: LIFO Cost Flow**

These panels display the impact on:

- Balance Sheet:
- Cash
- Inventory
- Retained Earnings

- Income Statement:
- Revenue
- Expenses
- Net Income

- Statement of Cash Flows:
- Use OA for operating activity

*Note:* Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input. The ending balances for cash, inventory, retained earnings, and net income should be calculated based on the entries.

Input these calculations and analyze which inventory method produces greater asset values on the balance sheet.

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