Chapter $5$ Practice Problem #$4$ Effect of different inventory cost flow methods considering taxes

The accounting records of Cheerio China Shop reflected the following balances as of January $1,$ Year $2$:

The following four 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 operating expenses

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.

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. Mark each cash event in the

cash T$-$account as OA$,$ IA or FA$.$

c$.$ Use a vertical model $($i$.$e$.$ GAAP$)$ to show the Year $2$ income statement, statement of change in

stockholders' equity and balance sheet under FIFO, LIFO, and weighted average.

Hint: Prepare a trial balance before preparing the statements.

Now assume Cheerio paid cash for income tax at the rate of $25$ percent of net income $($before

taxes$).$

d$.$ Compute the income tax expense under each method.

e$.$ Compute the ending cash balance under each method after taxes are paid.