The accounting records of Wall’s China Shop reflected the following balances as

Question

The accounting records of Wall’s China Shop reflected the following balances as of January 1, 2018: Cash $ 17,600 Beginning inventory 18,400 (200 units @ $92) Common stock 14,500 Retained earnings 21,500 The following five transactions occurred in 2018: First purchase (cash) 125 units @ $94 Second purchase (cash) 195 units @ $102 Sales (all cash) 355 units @ $190 Paid $15,700 cash for salaries expense Paid cash for income tax at the rate of 25 percent of income before taxes Required 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. Use a vertical model to show the 2018 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average.

Explanation / Answer

Calculation of COGS and Ending inventory under FIFO method -

Cosing stock = opening + purchase - sales

= 200 + 320 - 355

= 520 - 355

= 165

under FIFO mehod this 165 units left must be from last lot(second purchase) 195 units, so closing stock value/Ending inventory cost = 165*102 = 16830

COGS = total purchase cost - Ending inventory

= 200*92 + 125*94 + 195*102 - 16830

= 18400 + 11750 + 19890 - 16830

= 50040 - 16830

= 33210

Calculation of COGS and Ending inventory under LIFO method -

Cosing stock = opening + purchase - sales

= 200 + 320 - 355

= 520 - 355

= 165

under LIFO mehod this 165 units left must be from openng stock 200 units, so closing stock value/Ending inventory cost = 165*92 = 15180

COGS = total purchase cost - Ending inventory

= 200*92 + 125*94 + 195*102 - 15180

= 18400 + 11750 + 19890 - 15180

= 50040 - 15180

= 34860

Calculation of COGS and Ending inventory under Weighted average method -

from above table closing stock value/Ending inventory value would be = 15878.

COGS = opening + purchase - closing stock

= 18400 + 31640 - 15878

= 34162

Income statement -

Income tax expense has been shown in above computation.

Preparation of Cash flow statement -

Preparation of Retained earnings statement -

preparation of balance sheet -

Please note all figures are in $.

Please comment in case of any clarification required.

Under Weighted average method Date opening purchase COGS Closing Ending inventory value Cost per unit 1/1/2018 200 0 0 200 18400 92 first purchase 200 125 0 325 30150 92.77 second purchase 325 195 0 520 50040 96.23 sales 520 0 355 165 15878 96.23 Total 200 320 355 165

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