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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 like the following ones, assuming first a FIFO and then a LIFO cost flow. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA to indicate the element is not affected by the event. Round your final answers to the nearest whole dollar mount Ente to account balances and cash outflow with a minUs sian

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 like the following ones, assuming first a FIFO and then a LIFO cost flow. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA to indicate the element is not affected by the event. Round your final answers to the nearest whole dollar mount Ente to account balances and cash outflow with a minUs sian

FINANCIAL ACCOUNTING
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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### The Brick Company: Effect of Events on Financial Statements 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 5. The payment of income tax expense These events need to be illustrated in the following statements: 1. **Panel 1: FIFO Cost Flow** 2. **Panel 2: LIFO Cost Flow** For each panel, explain the impact on the Balance Sheet, Income Statement, and Cash Flows using horizontal statement models as follows: ### Panel 1: FIFO Cost Flow #### Balance Sheet | Event No. | Cash | + Inventory | = Retained Earnings | |:--:|:--:|:--:|:--:| | 1. | | | | | 2. | | | | | 3. | | | | | 4. | | | | | 5. | | | | | **Bal.** | | | | #### Income Statement | Revenue | – Expenses | = Net Income | |:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | #### Cash Flows | | | | | |:--:|:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ### Panel 2: LIFO Cost Flow #### Balance Sheet | Event No. | Cash | + Inventory | = Retained Earnings | |:--:|:--:|:--:|:--:| | 1. | | | | | 2. | | | | | 3. | | | | | 4. | | | | | 5. | | | | | **Bal.** | | | | #### Income Statement | Revenue | – Expenses | = Net Income | |:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | #### Cash Flows | | | | | |:--:|:--:|:--:|:--:| | | | |
Transcribed Image Text:### The Brick Company: Effect of Events on Financial Statements 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 5. The payment of income tax expense These events need to be illustrated in the following statements: 1. **Panel 1: FIFO Cost Flow** 2. **Panel 2: LIFO Cost Flow** For each panel, explain the impact on the Balance Sheet, Income Statement, and Cash Flows using horizontal statement models as follows: ### Panel 1: FIFO Cost Flow #### Balance Sheet | Event No. | Cash | + Inventory | = Retained Earnings | |:--:|:--:|:--:|:--:| | 1. | | | | | 2. | | | | | 3. | | | | | 4. | | | | | 5. | | | | | **Bal.** | | | | #### Income Statement | Revenue | – Expenses | = Net Income | |:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | #### Cash Flows | | | | | |:--:|:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | ### Panel 2: LIFO Cost Flow #### Balance Sheet | Event No. | Cash | + Inventory | = Retained Earnings | |:--:|:--:|:--:|:--:| | 1. | | | | | 2. | | | | | 3. | | | | | 4. | | | | | 5. | | | | | **Bal.** | | | | #### Income Statement | Revenue | – Expenses | = Net Income | |:--:|:--:|:--:| | | | | | | | | | | | | | | | | | | | | | | | | #### Cash Flows | | | | | |:--:|:--:|:--:|:--:| | | | |
**Accounting and Inventory Methods: A Practical Example** **Scenario:** The Brick Company had cash sales of $220,600 for Year 1, its first year of operation. On April 2, the company purchased 185 units of inventory at $160 per unit. On September 1, an additional 139 units were purchased for $176 per unit. The company had 35 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions. **Required Tasks:** 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 5. The payment of income tax expense. Show the amounts of each event in horizontal statements models like the following ones, 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? **Step-by-Step Solution:** 1. **Sales Transaction**: The Brick Company recorded cash sales of $220,600 for Year 1. 2. **First Purchase of Inventory**: On April 2, they purchased 185 units of inventory at $160 per unit. Total = 185 units x $160 = $29,600. 3. **Second Purchase of Inventory**: On September 1, they purchased an additional 139 units of inventory at $176 per unit. Total = 139 units x $176 = $24,464. 4. **Recognition of Cost of Goods Sold Expense**: - **Using FIFO (First-In, First-Out)**: - The first units sold are the first units purchased. - Assuming they sold 289 units (220,600 / 765 = 289 units sold approximately). - They would first expense the units purchased in April (185 units at $160). - If more units are needed, use the units purchased in September (remaining up to 104 units at $176). - **Using LIFO (Last-In, First-Out)**: - The last units purchased are the first units sold. - Assuming they sold 289 units. - They would first expense
Transcribed Image Text:**Accounting and Inventory Methods: A Practical Example** **Scenario:** The Brick Company had cash sales of $220,600 for Year 1, its first year of operation. On April 2, the company purchased 185 units of inventory at $160 per unit. On September 1, an additional 139 units were purchased for $176 per unit. The company had 35 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions. **Required Tasks:** 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 5. The payment of income tax expense. Show the amounts of each event in horizontal statements models like the following ones, 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? **Step-by-Step Solution:** 1. **Sales Transaction**: The Brick Company recorded cash sales of $220,600 for Year 1. 2. **First Purchase of Inventory**: On April 2, they purchased 185 units of inventory at $160 per unit. Total = 185 units x $160 = $29,600. 3. **Second Purchase of Inventory**: On September 1, they purchased an additional 139 units of inventory at $176 per unit. Total = 139 units x $176 = $24,464. 4. **Recognition of Cost of Goods Sold Expense**: - **Using FIFO (First-In, First-Out)**: - The first units sold are the first units purchased. - Assuming they sold 289 units (220,600 / 765 = 289 units sold approximately). - They would first expense the units purchased in April (185 units at $160). - If more units are needed, use the units purchased in September (remaining up to 104 units at $176). - **Using LIFO (Last-In, First-Out)**: - The last units purchased are the first units sold. - Assuming they sold 289 units. - They would first expense
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