The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash $17,000 Beginning inventory 18,700 (220 units @ $85) Common stock 15,200 Retained earnings 20,500 The following five transactions occurred in Year 2: 1. First purchase (cash) 125 units @ $87 2. Second purchase (cash) 205 units @ $95 3. Sales (all cash) 375 units @ $200 4. Paid $14,750 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. b. Use a vertical model to show the Year 2 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.)
The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2: Cash $17,000 Beginning inventory 18,700 (220 units @ $85) Common stock 15,200 Retained earnings 20,500 The following five transactions occurred in Year 2: 1. First purchase (cash) 125 units @ $87 2. Second purchase (cash) 205 units @ $95 3. Sales (all cash) 375 units @ $200 4. Paid $14,750 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. b. Use a vertical model to show the Year 2 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.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Munabhai
Transcribed Image Text:The accounting records of Wall's China Shop reflected the following balances as of
January 1, Year 2:
Cash
$17,000
Beginning inventory
18,700 (220 units @ $85)
Common stock
15,200
Retained earnings
20,500
The following five transactions occurred in Year 2:
1. First purchase (cash) 125 units @ $87
2. Second purchase (cash) 205 units @ $95
3. Sales (all cash) 375 units @ $200
4. Paid $14,750 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.
b. Use a vertical model to show the Year 2 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.)
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