Problem 5-19A: Effect of different inventory cost flow methods on financial statements

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:

1. First purchase (cash): 150 units @ $155
2. Second purchase (cash): 160 units @ $160
3. Sales (all cash): 410 units @ $320
4. Paid $38,000 cash for salaries expense
5. 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 five 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.

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. (Hint: Record the events under an accounting equation before preparing the statements.)