Crystal Apple Sales Company began 2016 with cash of $2,000, inventory of $3,600 (200 crystal apples that cost $18 each), $2,500 of common stock, and $3,100 of retained earnings . The following
events occurred during 2016.
1. Crystal Apple purchased additional inventory twice during 2016. The first purchase consisted of 800 apples that cost $20 each, and the second consisted of 1,200 apples that cost $24 each. The
purchases were on account. 2. The company sold 2,040 apples for cash at a selling price of $40 each. 3. The company paid $44,800 cash on accounts payable for inventory purchases. 4. Crystal Apple
paid $26,000 cash for operating expenses. 5. Assume an income tax rate of 30 percent. Crystal Apple paid income tax expense in cash.
Required: a. Record the events in ledger T-accounts using the three different cost flow assumptions: FIFO, LIFO, and weighted average (see attached workpapers). b. Prepare an income statement, a
balance sheet, and a statement of cash flows under each of the three cost flow assumptions (see last page). c. Questions (address pages 274-275 *after* completing parts “a” & “b” above: 1) Which
method produces the “most accurate” Income Statement in your opinion?
2) Which method produces the “most accurate” Balance Sheet in your opinion?
3) How is the Statement of Cash Flows affected by the choice of Inventory Cost Flow used?