Problem 5-19A 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 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. Record the above transactions in general journal form and post to T-accounts assuming (1) FIFO cost flow, (2) LIFO cost flow, and (3) weighted-average cost flow. Assume perpetual inventory system is used. 1. FIFO 2. LIFO 3. Weighted Average c. Use a vertical model to show the Year 2 income statement, balance sheet, and statement of cash flows under FIFO, LIFO, and weighted average.
