Accounting Exercise 7.1 (Accounting for Inventories)
Silk Trading Company had such account balances at the beginning of 20X7:
| Assets |
= |
Claims |
||||
| Cash |
+ |
Inventory |
= |
Contributed |
+ |
Retained |
| $6,500 |
+ |
$1,000 |
= |
$1,500 |
+ |
$6,000 |
The following data pertain to the company's activities in 20X7:
| Beginning inventory: | 50 units x $20 | (=$1,000) |
| First Purchase: | 100 units x $22 | (=$2,200) |
| Second Purchase: | 150 units x $26 | (=$3,900) |
| Sale: | 280 units x $40 | (=$11,200) |
All transactions involved cash (payment or receipt). Also there were selling and administrative expenses amounting to $1,200. At the accounting period endthe company paid 20% income tax.
Required:
1) Determine the cost of goods sold using FIFO, LIFO, and weighted-average
costs.
2) Compute the net income and income tax expense under three different
costs (as determined in task #1 above).
3) Prepare the accounting equation table and financial statements (income
statement, balance sheet, and the statement of cash flows).
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