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 $18,500 19,580 (220 units @ $89) 14,700 23,380 The following five transactions occurred in Year 2: 1. First purchase (cash) 115 units @ $91 2. Second purchase (cash) 195 units @ $99 3. Sales (all cash) 365 units @ $187 4. Paid $15,800 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 Beginning inventory Common stock Retained earnings $18,500 19,580 (220 units @ $89) 14,700 23,380 The following five transactions occurred in Year 2: 1. First purchase (cash) 115 units @ $91 2. Second purchase (cash) 195 units @ $99 3. Sales (all cash) 365 units @ $187 4. Paid $15,800 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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Transcribed Image Text: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
$18,500
19,580 (220 units @ $89)
14,700
23,380
The following five transactions occurred in Year 2:
1. First purchase (cash) 115 units @ $91
2. Second purchase (cash) 195 units @ $99
3. Sales (all cash) 365 units @ $187
4. Paid $15,800 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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Step 1: Introduction of costing system
VIEWStep 2: Computation of cost of goods sold using FIFO method
VIEWStep 3: Computation of cost of goods sold using LIFO method
VIEWStep 4: Computation of cost of goods sold using weighted-average method
VIEWStep 5: Preparation of income statement
VIEWStep 6: Preparation of balance sheet
VIEWStep 7: Preparation of cash flow statement
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