Question

The beginning account balances for Terry’s Auto Shop as of January 1, 2018, follows:

Account Titles Beginning Balances

Cash $ 6,170

Inventory 3,050

Common Stock 7,360

Retained Earnings 1,860

The following events affected the company during the 2018 accounting period:

Purchased merchandise on account that cost $4,260.

The goods in Event 1 were purchased FOB shipping point with freight cost of $245 cash.

Returned $465 of damaged merchandise for credit on account.

Agreed to keep other damaged merchandise for which the company received an $210 allowance.

Sold merchandise that cost $2,680 for $4,800 cash.

Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $135 cash.

Paid $2,920 on the merchandise purchased in Event 1.

Required

Organize appropriate ledger accounts under an accounting equation. Record the beginning balances and the transaction data in the accounts. In the last column of the table, provide appropriate account titles for the Retained Earnings amounts. (Enter any decreases to account balances with a minus sign. If there is no effect on the Accounts Titles for Retained Earnings, leave the cell blank. Not every cell will require entry.)

Answer 1

Working as follows:

TERRY’S AUTO SHOP
Effect of Events on the Financial Statements
	Assets					=	Liabilities	+	Stockholders’ Equity
Events	Cash	+	Inventory	=	Accounts Payable	+	Common Stock	+	Retained Earnings	Accounts Titles for Retained Earnings
Beg. Bal.	$6,170	+	$3,050	=		+	$7,360	+	$1,860	NA
1		+	$4,260	=	$4,260	+		+		NA
2	($245)	+	$245	=		+		+		NA
3		+	($465)	=	($465)	+		+		NA
4		+	($210)	=	($210)	+		+		NA
5a.	$4,800	+		=		+		+	$4,800	Sales Revenue
5b.		+	($2,680)	=		+		+	($2,680)	Cost of goods sold
6	($135)	+		=		+		+	($135)	Transportation out
7	($2,920)	+		=	($2,920)	+		+		NA
End Bal.	$7,670	+	$4,200	=	$665	+	$7,360	+	$3,845

___________________________________________________________

Income Statement
For the year ended december 31
Net Sales	$4,800
Cost of goods sold	($2,680)
Gross profit	$2,120
Operating expenses
Transportation out	($135)
Net Income	$1,985

________________________________________________

Statement of retained earnings
Beg. Bal.	$1,860
Add: Net Income	$1,985
End. Bal.	$3,845