Question

Cash Inventory Land Common stock Retained earnings $ 6,900 15,000 7,000 15,000 13,900 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $190 were paid in cash. 2. Returned $400 of the inventory it had purchased from Ross Company 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 $6,800 for $12,100 on account, under terms 2/10,n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1,680 cash. The customer was paid $1,680 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $8,500, 9. Recognized accrued interest income of $600. 10. Took a physical count indicating that $13.400 of inventory was on hand at the end of the accounting period. (Hint Determine the current balance in the inventory account before calculating the amount of the inventory write down.)

Answer 1

Income Statement:	Amount $
Sales	12100
Less :Allow & return	-1680
Trade discount recd.	48	(5200-400)*1%
Total Revenue	10468
Less: COGS:
Inventory sold	6800
Less: inventory returned	-900
Add: Inventory normal loss	500	(13900-13400)
COGS	6400
Gross Profit	4068
Less: Operating Expenses:
Trade discount given	208.4	(12100-1680)*2%
Freight inward	190
Freight outward	140
Total Operating Expenses:	538.4
Operating Profit	3529.6
Non-operating items:
Gain on sale of land	1500	(8500-7000)
Interest accrued	600
Net Income	5629.6