Effect of different inventory cost flow methods on financial statements
LO 5-1 The accounting records of Wall's China Shop reflected the following balances as of January 1, Year 2:

Cash $ 80,100
Beginning inventory 33,000 (220 units @ $150)
Common stock 50,000
Retained earnings 63,100

The following five transactions occurred in Year 2:
First purchase (cash) 150 units @ $155
Second purchase (cash) 160 units @ $160
Sales (all cash): 410 units @ $320
Paid $38,000 cash for salaries expense
Paid cash for income tax at the rate of 25 percent of income before taxes.

Compute the cost of goods sold and ending (1) FIFO cost flow, (2) LIFO cost flow. Compute the income tax expanses for each method.

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

                       FIFO LIFO WA    

Sales                131.200 131.200 131.200    

Cost of goods 62650 63850 63.317,92    

Gross profit          68.550 67.350 67.882    

Salaries                  38000 38000 38000    

EBiT                  30.550 29.350 29.882    

Income tax             637,5 7337,5 7470,518868    

net Income            22.913 22.013 22.412

b. Record the above transactions in general journal form

1        

Db Inventory 23250      

Cr Cash             23250      

Purcahse 1        

2        

Db Inventory 25600      

Cr Cash               25600      

Purchase 2        

3        

Db Cash 131200      

Cr revenue  131200      

Sales        

4        

Db Cost of goods 62650      

Cr Inventory                62650      

Cost of goods  

Explanation:

    Units Cost Price Cost Price  

Begining Inventory 220  150               33.000    

purchase 1                  150 155                33.250    

purchase 2                  160 160      

Sales                          410 320  131.200  

FIFO                  Units Cost Sale Price Cost Price Cost

Begining Inventory 220 150               220  33.000      33000

purchase 1          150 155 150  23.250  23250

purchase 2        160 160 40  25.600  6400

Sales                                   410 320  131.200 62650

 0    

LIFO                    Units Cost Sale Price Cost Price Cost of g

Begining Inventory 220 150 100  33.000  15000

purchase 1                  150 155 150  23.250  23250

purchase 2                 160 160 160  25.600  25600

Sales                                     410 320  131.200 63850

 0    

WA                           Units Cost Sale Price Cost Price Cost of g.

Begining Inventory 220 150 0  33.000  0

purchase 1                  150 155 0  23.250  0

                               370 152   56.250  

purchase 2                 160 160 0  25.600  0

                               530 154 410  81.850  63.317,92

Sales           410 320                   131.200    

   FIFO LIFO WA    

Sales 131.200 131.200 131.200    

Cost of goods 62650 63850 63.317,92    

Gross profit 68.550 67.350 67.882    

Salaries 38000 38000 38000    

EBiT 30.550 29.350 29.882    

Income tax 7637,5 7337,5 7470,518868    

net Income 22.913 22.013 22.412    

1        

Db Inventory 23250      

Cr Cash             23250      

Purcahse 1        

2        

Db Inventory 25600      

Cr Cash               25600      

Purchase 2        

3        

Db Cash 131200      

Cr revenue  131200      

Sales        

4        

Db Cost of goods 62650      

Cr Inventory                62650      

Cost of goods        

a ab

month 1 start amount =$3287.90 interest=(3287.90x0.0145/12)3.97 total to pay=$3291.81 paid =$1200 balance =$2,091.87

month 2 starting amount= $2,091.87 interest =$25.28 total to pay =$2117.15 paid =$1200 balance $917.15

month 3 starting amount =$917.15 interest =$11.08 total to pay =$928.23 paid =$928.23 balance =$0 total to pay 1200+1200+928.23 = $3328.23 it will take 3 months to pay a total of $3328.23