ACCT1006 Study Guide - Cheque, Operating Budget, Historical Cost

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.

During January, a companythat uses a perpetual inventory system had beginning inventory,purchases, and sales as follows:
Units Unit cost

Beggininginventory 100 10

Jan 5purchased 40 12

Jan 10sold 60

Jan 15purchased 70 13

Jan 25sold 50

** The selling priceper unit is $20.

1. Using the perpetual inventory system, calculate the total cost ofgoods sold for January and cost of the company's January31^st inventory for the following methods. Show all your work using the format used in thetext!

a) FIFO

b) LIFO

c) Weighted average

d) Prepare journal entries for the events listed in the questionusing the amounts calculated using in (a) FIFO method.

2. Using the periodic inventory system, calculate the cost of goodssold for January and cost of the company's January 31^stinventory for the following methods. Showall your work using the format provided in the appendix of thechapter in the text!

a) FIFO

b) LIFO

c) Weighted average

3. A company made thefollowing purchases during the year:

Jan 10: 15 units @ 360each

Mar 25: 25 units @390each

April 25: 10 units @ 420each

July 30: 20 units @ 450each

Oct 10: 15 units @ 480each

On December 31, there were28 units in ending inventory. These 28 units consisted of 1 fromthe January 10 purchase, 2 from the March 15 purchase, 5 from theApril 25 purchase, 15 from the July 30 purchase, and 5 from theOctober 10 purchase. Using perpetual inventory system, calculatethe cost goods sold and ending inventory for the year using thespecific identification method. Show all your work using the format provided in the text!(Note: Answers do not differ using the periodic inventorysystem)

4. Monitor Company usesthe LIFO method for valuing its ending inventory. The followingfinancial statement information is available for its first year ofoperation:

Income Statement

For the year ended Dec31

Sales 50,0000

Cost of goodssold 23,000

Grossprofit 27,000

Expenses 13,000

Income beforetaxes 14,000

Monitor's ending inventoryusing the LIFO method was $8,200. Monitor's accountant determinedthat, had the company used FIFO, the ending inventory would havebeen $8,500.

a) Determine what the income beforetaxes would have been, had Monitor used the FIFO method ofinventory valuation instead of LIFO.

b) What would be the difference in income taxesbetween LIFO and FIFO, assuming a 30% tax rate?

c) If Monitor wanted to lower the amount of income taxes to be paid, whichmethod would it choose?