The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash Beginning inventory Common stock Retained earnings $18,400 14,105 (155 units @ $91) 16,000 16,505 The following five transactions occurred in Year 2: 1. First purchase (cash) 120 units @ $93 2. Second purchase (cash) 195 units @ $101 3. Sales (all cash) 420 units @ $197 4. Paid $16,300 cash for salaries expenses. 5. Paid cash for income tax at the rate of 40 percent of income before taxes. 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.
The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash Beginning inventory Common stock Retained earnings $18,400 14,105 (155 units @ $91) 16,000 16,505 The following five transactions occurred in Year 2: 1. First purchase (cash) 120 units @ $93 2. Second purchase (cash) 195 units @ $101 3. Sales (all cash) 420 units @ $197 4. Paid $16,300 cash for salaries expenses. 5. Paid cash for income tax at the rate of 40 percent of income before taxes. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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
Transcribed Image Text:The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2:
$18,400
14,105 (155 units @ $91)
16,000
16,505
Cash
Beginning inventory
Common stock
Retained earnings
The following five transactions occurred in Year 2:
1. First purchase (cash) 120 units @ $93
2. Second purchase (cash) 195 units @ $101
3. Sales (all cash) 420 units @ $197
4. Paid $16,300 cash for salaries expenses.
5. Paid cash for income tax at the rate of 40 percent of income before taxes.
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.
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
Use a vertical model to show the Year 2 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and
weighted average.
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