MBA560 Financial and Managerial Accounting: P5-33 The accounting records of Clear Photography, Inc

MBA560 Financial and Managerial Accounting
Week 3 Homework

Problem 5-33 Effect of different inventory cost flow methods on financial statements
The accounting records of Clear Photography, Inc., reflected the following balances as of January 1, 2012:
Cash 18,000
Beginning inventory (150 units @ $90) 13,500
Common stock 15,000
Retained earnings 16,500

The following five transactions occurred in 2012:
1. First purchase (cash) 120 units @ $92
2. Second purchase (cash) 200 units @ $100
3. Sales (all cash) 300 units @ $185
4. Paid $15,000 cash for operating expenses.
5. Paid cash for income tax at the rate of 40 percent of income before taxes.

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. Use a vertical model to prepare the 2012 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.)
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