Question
The accounting records of Walls China Shop reflected the following balances as of January 1, Year 3: Cash $ 18,900 Beginning inventory 19,350 (215 @
The accounting records of Walls China Shop reflected the following balances as of January 1, Year 3: Cash $ 18,900 Beginning inventory 19,350 (215 @ $90) Common stock 14,500 Retained earnings 23,750 The following five transactions occurred in Year 3: First purchase (cash): 125 units @ $92 Second purchase (cash): 205 units @ $100 Sales (all cash): 370 units @ $186 Paid $16,050 cash for salaries expense 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 Year 3 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.)
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