h. Use a vertical model to show the 2018 income statement, balance sheet, and st

Question

h. Use a vertical model to show the 2018 income statement, balance sheet, and statement of flows under FIFO. LIFO, and weighted average. (Hint: Record the events under an accounting equation before preparing the statements.) Problem 5-33 Effect of FIFO versus LIFO on income tax expense The Brick Company had cash sales of $280,000 for 2018, its first year of operation. On April 2 company purchased 210 units of inventory at $390 per unit. On September 1, an additional 160 uni LO 5-6 were purchased for $425 company's income tax rate is 40 percent. All transactions are cash transactions Required a. The preceding paragraph describes five accounting events: (1) a sales transaction, (2 per unit. The company had 110 units on hand at the end of the year ) the first pur chase 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. Record the amounts of each event in horizon. tal statements models like the following ones, assuming first a FIFO and then a LIFO cost flow Effect of Events on Financial Statements Panel 1: FIFO Cost Flow nt Statement of Cash Flows Balance Sheet Income Statement Cash InventoryRet. Earn. Rev. Exp. Net Inc. Panel 2: LIFO Cost Flow Statement of Cash Flows Balance Sheet Incame Statenent InventoryRet. Earn. Rev. Net Inc.

Explanation / Answer

Requirement a The effects of events on Financial Statement Panel 1 : FIFO Cost views Balance Sheet Income Statement Statement of Cash flows Cash + Inventory = Ret. Earn. Revenue - Expense = Net Income Inflow Outflow 1 Apr-02 Company purchased 210 units of inventory @390 per unit -81900 + 81900 = 0 0 - 0 = 0 81900 2 Sep-01 Company purchased additional 160 units @ 425 per unit -68000 + 68000 = 0 0 - 0 = 0 68000 3 End of the year Sales transaction 280000 + 0 = 280000 280000 - 0 = 280000 280000 4 End of the year Cost of goods sold 0 + -103150 = -103150 0 - 103150 = -103150 5 End of the year Payment of Income Tax expense -70740 + 0 = -70740 0 - 70740 = -70740 70740 The effects of events on Financial Statement Panel 1 : FIFO Cost views Balance Sheet Income Statement Statement of Cash flows Cash + Inventory = Ret. Earn. Revenue - Expense = Net Income Inflow Outflow 1 Apr-02 Company purchased 210 units of inventory @390 per unit -81900 + 81900 = 0 0 - 0 = 0 81900 2 Sep-01 Company purchased additional 160 units @ 425 per unit -68000 + 68000 = 0 0 - 0 = 0 68000 3 End of the year Sales transaction 280000 + 0 = 280000 280000 - 0 = 280000 280000 4 End of the year Cost of goods sold 0 + -107000 = -107000 0 - 107000 = -107000 5 End of the year Payment of Income Tax expense -69200 + 0 = -69200 0 - 69200 = -69200 69200 Requirement b Computation of Net Income using FIFO Revenue from Sales 280000 Cost of goods sold 103150 Profit 176850 Income Tax expense@40% 70740 Net Income 106110 Requirement c Computation of Net Income using LIFO Revenue from Sales 280000 Cost of goods sold 107000 Profit 173000 Income Tax expense@40% 69200 Net Income 103800 Requirement d Tax expense under FIFO 70740 Tax expense under LIFO 69200 Difference 1540 Requirement e The FIFO vs. LIFO Cost flow assumptions affect the statement of cash flows by $1540. Given that there is no change in the cash flow in case of sales and purchase of inventory, the only change is in payment of taxes which differs as per the cost method(FIFO vs. LIFO) used.

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