b. Record each event in a statements model like the following one. In the Cash Flow column, use OA to designate operating activity, IAfor investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave thecell blank. The first event is recorded as an example. (Not every cell will require entry. Enter any decreases to account balancesand cash outflows with a minus sign.)EventBal.1a.1b.2.3.4a4b.5a.5b.6.7.8.Bal.Cash7,500 ++++$ 7,500 +AssetsAccountsReceivable$+++++0+Balance SheetMerchandiseInventory$= Liabilities +AccountsPayable1,500 =1,500 =$REDD COMPANYHorizontal Statements Model - Year 2Stockholders' EquityCommonStock7.000 +Retained RevenueEarnings2,0000 + $ 7,000+ $ 2,000 $Income Statement- Expenses =0-$0=NetIncome$0Statement of CashFlows$0 [The following information applies to the questions displayed below.]At the beginning of Year 2, the Redd Company had the following balances in its accounts:CashInventoryCommon stockRetained earnings$7,5001,5007,0002,000During Year 2, the company experienced the following events:1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise wasdelivered FOB shipping point. Freight costs of $450 were paid in cash.2. Returned $350 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreedto pay the return freight cost.3. Paid the amount due on its account payable to Ross Company within the cash discount period.4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45.5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customerfor $750 cash. The customer was paid $750 cash for the returned merchandise.6. Delivered goods FOB destination in Event 4. Freight costs of $550 were paid in cash.7. Collected the amount due on the account receivable within the discount period.8. Took a physical count indicating that $1,200 of inventory was on hand at the end of the accounting period.

Accounting equation:Assets = Liabilities + Stockholders' equity

During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash. 2. Returned $350 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreed to pay the return freight cost. 3. Paid the amount due on its account payable to Ross Company within the cash discount period. 4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer 150.656 merchandise

During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash. 2. Returned $350 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreed to pay the return freight cost. 3. Paid the amount due on its account payable to Ross Company within the cash discount period. 4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer 150.656 merchandise

Century 21 Accounting General Journal

11th Edition

ISBN:9781337680059

Author:Gilbertson

Publisher:Gilbertson

Chapter20: Accounting For Inventory

Section: Chapter Questions

Problem 3AP

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