Powell Company began the Year 3 accounting period with $44,000 cash, $90,000 inventory. $64,000 common stock, and $70,000 retained earnings. During Year 3, Powell experienced the following events: 1. Sold merchandise costing $60,000 for $103,500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $1,100 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,400 and were sold to Prentise for $6,600. 4. Granted Prentise a $3,400 allowance for damaged goods that Prentise agreed to keep. 5. Collected partial payment of $84,500 cash from accounts receivable. Required: a. Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods? Complete this question by entering your answers in the tabs below. Req A Req B1 Req B2 Req B3 Req C Why would Prentise agree to keep the damaged goods? Note: Select "Yes" if the item is a reason to agree, and "No" if it is not. Get goods at reduced cost. Can resell the damaged goods. Repair the damaged goods. Retain the damaged goods. < Req B3 Req C >
Powell Company began the Year 3 accounting period with $44,000 cash, $90,000 inventory. $64,000 common stock, and $70,000 retained earnings. During Year 3, Powell experienced the following events: 1. Sold merchandise costing $60,000 for $103,500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $1,100 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,400 and were sold to Prentise for $6,600. 4. Granted Prentise a $3,400 allowance for damaged goods that Prentise agreed to keep. 5. Collected partial payment of $84,500 cash from accounts receivable. Required: a. Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA). b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods? Complete this question by entering your answers in the tabs below. Req A Req B1 Req B2 Req B3 Req C Why would Prentise agree to keep the damaged goods? Note: Select "Yes" if the item is a reason to agree, and "No" if it is not. Get goods at reduced cost. Can resell the damaged goods. Repair the damaged goods. Retain the damaged goods. < Req B3 Req C >
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text:Powell Company began the Year 3 accounting period with $44,000 cash, $90,000 inventory. $64,000 common stock, and $70,000
retained earnings. During Year 3, Powell experienced the following events:
1. Sold merchandise costing $60,000 for $103,500 on account to Prentise Furniture Store.
2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $1,100 cash.
3. Received returned goods from Prentise. The goods cost Powell $4,400 and were sold to Prentise for $6,600.
4. Granted Prentise a $3,400 allowance for damaged goods that Prentise agreed to keep.
5. Collected partial payment of $84,500 cash from accounts receivable.
Required:
a. Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of
cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify
the cash flows as operating activities (OA), investing activities (IA), or financing activities (FA).
b. Prepare an income statement, a balance sheet, and a statement of cash flows.
c. Why would Prentise agree to keep the damaged goods?
Complete this question by entering your answers in the tabs below.
Req A
Req B1
Req B2
Req B3
Req C
Why would Prentise agree to keep the damaged goods?
Note: Select "Yes" if the item is a reason to agree, and "No" if it is not.
Get goods at reduced cost.
Can resell the damaged goods.
Repair the damaged goods.
Retain the damaged goods.
< Req B3
Req C >
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