The accounting records of Wall\'s China Shop reflected the following balances as
ID: 2332332 • Letter: T
Question
The accounting records of Wall's China Shop reflected the following balances as of January 1,2018: Cash Beginning inventory Common stock Retained earnings $17,900 19,360 (220 units e s88) 15,700 21,560 The following five transactions occurred in 2018: 1. First purchase (cash) 115 units@ $90 2. Second purchase (cash) 205 units @ $98 3. Sales (all cash) 365 units $190 4. Paid $15,000 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. Compute the income tax expense for each method b. Use a vertical model to show the 2018 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.)Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. Part a: Quantity Rate Total Cost Beginning Inventory 220 $88 $19,360 First Purchase 115 $90 $10,350 Second Purchase 205 $98 $20,090 Sale: Ending Inventory: FIFO FIFO Beginning Inventory 220 $88 $19,360 First Purchase 115 $90 $10,350 Second Purchase 30 $98 $2,940 175 $98 $17,150 Cost of Goods Sold $32,650 $17,150 LIFO LIFO Second Purchase 205 $98 $20,090 First Purchase 115 $90 $10,350 Beginning Inventory 45 $88 $3,960 175 $88 $15,400 Cost of Goods Sold $34,400 $15,400 Weighted Average Quantity Rate Total Cost Weighted Average Beginning Inventory 220 $88 $19,360 First Purchase 115 $90 $10,350 Second Purchase 205 $98 $20,090 175 $92.22 $16,139 Total 540 $49,800 $16,139 Weighted Average Rate 49800/540 92.2 Cost of Goods Sold 365*92.22 $33,660 Part b: Accounting Equation: FIFO $ $ $ $ $ $ Cash+ Inventory= Liabilities+ Equity+ Revenue- Expense Cash Flow 1. First Purchase 10350 -10350 Operating Activities 2. Second Purchase 20090 -20090 Operating Activities 3. Sale 69350 69350 Operating Activities 3. Cost of Goods Sold: FIFO -17150 17150 4. Salaries -15000 15000 Operating Activities 5. Income Tax -9300 9300 Operating Activities Total 14610 13290 0 0 69350 41450 LIFO $ $ $ $ $ $ Cash+ Inventory= Liabilities+ Equity+ Revenue- Expense Cash Flow 1. First Purchase 10350 -10350 Operating Activities 2. Second Purchase 20090 -20090 Operating Activities 3. Sale 69350 69350 Operating Activities 3. Cost of Goods Sold: LIFO -15400 15400 4. Salaries -15000 15000 Operating Activities 5. Income Tax -9738 9738 Operating Activities Total 14172 15040 0 0 69350 40138 WA $ $ $ $ $ $ Cash+ Inventory= Liabilities+ Equity+ Revenue- Expense Cash Flow 1. First Purchase 10350 -10350 Operating Activities 2. Second Purchase 20090 -20090 Operating Activities 3. Sale 69350 69350 Operating Activities 3. Cost of Goods Sold: WA -16139 16139 4. Salaries -15000 15000 Operating Activities 5. Income Tax -9553 9553 Operating Activities Total 14357 14301 0 0 69350 40692 Income Statement: FIFO LIFO WA Sales $69,350 $69,350 $69,350 Cost of Goods Sold -$17,150 -$15,400 -$16,139 Gross Margin $52,200 $53,950 $53,212 Salaries Expense -$15,000 -$15,000 -$15,000 Income before tax $37,200 $38,950 $38,212 Income Tax Expense 25% -$9,300 -$9,738 -$9,553 Net Income $27,900 $29,213 $28,659 Balance Sheet: FIFO LIFO WA Asset Cash $32,510 $32,073 $32,257 17900+14610 17900+14172 17900+14357 Inventory $32,650 $34,400 $33,661 19360+13290 19360+15040 19360+14301 Total Assets $65,160 $66,473 $65,918 Stockholder Equity Common Stock $15,700 $15,700 $15,700 Retained Earning $49,460 $50,773 $50,219 21560+Net Income Total Stockholder Equity $65,160 $66,473 $65,918 Cash Flow: FIFO LIFO WA Cash flow from operating activities: Cash inflow from customers $ 69,350 $ 69,350 $ 69,350 Cash outflow for income tax $ -9,300 $ -9,738 $ -9,553 Cash outflow for inventory $ -30,440 $ -30,440 $ -30,440 Cash outflow for Salaries Expense $ -15,000 $ -15,000 $ -15,000 Net Cash flor from operating activities: $ 14,610 $ 14,173 $ 14,357 Cash flow from investing activities $ - $ - $ - Cash flow from Financing activities $ - $ - $ - Net Change in Cash $ 14,610 $ 14,173 $ 14,357 add:Beginning Cash Balance $ 17,900 $ 17,900 $ 17,900 Ending Cash Balance $ 32,510 $ 32,073 $ 32,257
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