Concept explainers
Exercise 3-7 Effect of purchase returns and allowances and freight costs on the financial statements: Perpetual system
The beginning account balances for Terry’s Auto Shop as of January 1, 2018, follow:
The following events affected the company during the 2018 accounting period:
1. Purchased merchandise on account that cost $15,000.
2. The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash.
3. Returned $2,600 of damaged merchandise for credit on account.
4. Agreed to keep other damaged merchandise for which the company received a $1,100 allowance.
5. Sold merchandise that cost $15,000 for $31,000 cash.
6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash.
7. Paid $8,000 on the merchandise purchased in Event 1.
Required
a. Organize appropriate ledger accounts under an
b. Prepare an income statement and a statement of
c. Explain why a difference does or does not exist between net income and net cash flow from operating activities.
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Survey Of Accounting
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