Exercise 5 7A (Algo) Effect of FIFO Versus LIFO on income tax expense LO 5 1 The Brick Company had cash sales of $227,200 for Year 1, its first year of operation On April 2, the company purchased 211 units of inventory at $180 per unit On September 1, an additional 158 units were purchased for $198 per unit The company had 55 units on hand at the end of the year The companys income tax rate is 40 percent All transactions are cash transactions Required 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, assuming first a FIFO and then a LIFO cost flow Compute net income using FIFO Compute net income using LIFO Which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet 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, 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 Enter any decreases to account balances and cash outflows with a minus sign Not all cells require input ) THE BRICK COMPANY Effect of Events on Financial Statements Panel 1 FIFO Cost Flow Event No Balance Sheet Income Statement Statement of Cash Flows Cash Inventory Retained Earnings Revenue Expenses Net Income 1 2 3 4 5 Balance 0 0 0 0 0 0 0 Panel 2 LIFO Cost Flow 1 2 3 4 5 Balance 0 0 0 0 0 0 0

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Exercise 5-7A (Algo) Effect of FIFO Versus LIFO on income tax expense LO 5-1 The Brick Company had cash sales of $227,200 for Year 1,

Exercise 5-7A (Algo) Effect of FIFO Versus LIFO on income tax expense LO 5-1

The Brick Company had cash sales of $227,200 for Year 1, its first year of operation. On April 2, the company purchased 211 units of inventory at $180 per unit. On September 1, an additional 158 units were purchased for $198 per unit. The company had 55 units on hand at the end of the year. The companys income tax rate is 40 percent. All transactions are cash transactions. Required

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, assuming first a FIFO and then a LIFO cost flow.
Compute net income using FIFO.
Compute net income using LIFO.
Which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet?

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, 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. Enter any decreases to account balances and cash outflows with a minus sign. Not all cells require input.)