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.

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. 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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