Required information [The following information applies to the questions displayed below.] At the beginning of Year...
Required information
[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:
| Cash | $ | 16,800 |
| Inventory | 4,000 | |
| Land | 2,000 | |
| Common stock | 12,000 | |
| Retained earnings | 10,800 | |
During Year 2, the company experienced the following
events:
- Purchased inventory that cost $11,200 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $800 were paid in cash.
- Returned $600 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.
- Paid the amount due on its account payable to Ross Company within the cash discount period.
- Sold inventory that had cost $8,000 for $13,500 on account, under terms 2/10, n/45.
- Received merchandise returned from a customer. The merchandise originally cost $1,200 and was sold to the customer for $2,100 cash. The customer was paid $2,100 cash for the returned merchandise.
- Delivered goods FOB destination in Event 4. Freight costs of $800 were paid in cash.
- Collected the amount due on the account receivable within the discount period.
- Sold the land for $3,500.
- Recognized accrued interest income of $500.
- Took a physical count indicating that $6,500 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.)
d. Prepare a multistep income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows for year 2.
Homework Answers
| REDD COMPANY | ||
| Multistep Income Statement | ||
| Revenues | ||
| Sales | 13,500 | |
| Less: | ||
| Sales discounts | (270) | |
| Sales returns & allowances | (2,100) | |
| Net sales | 11,130 | |
| Cost of Goods Sold | ||
| Beginning inventory | 4,000 | |
| Add: | ||
| Purchases | 11,200 | |
| Freight Inwards | 800 | |
| Less: | ||
| Purchase returns | (600) | |
| Purchase discounts | (212) | |
| Ending inventory | (6,500) | |
| Cost of Goods Sold | 8,688 | |
| Gross profit | 2,442 | |
| Operating expenses | ||
| Freight outwards | 800 | |
| Net operating income | 1,642 | |
| Non operating income | ||
| Interest expenses | 500 | |
| Profit on sale of land | 1,500 | |
| Non operating income | 2,000 | |
| Net income | 3,642 | |
| REDD COMPANY | ||
| Statement of Retained Earnings | ||
| Beginning balance | 10,800 | |
| Adjustment during the year | ||
| Restatements during the year | ||
| 10,800 | ||
| Net income for the year | 3,642 | |
| Ending balance | 14,442 | |
| REDD COMPANY | ||
| Statement of Financial Position | ||
| Current Assets | ||
| Cash | 19,442 | |
| Accrued interest income | 500 | |
| Inventory | 6,500 | |
| 26,442 | ||
| Non-current assets | - | |
| Total assets | 26,442 | |
| Current Liabilities | - | |
| Non-current liabilities | - | |
| Total liabilities | - | |
| Shareholders' equity | ||
|
Common Stock |
12,000 | |
|
Retained Earnings |
14,442 | |
| Total Shareholders' equity | 26,442 | |
| Total Liabilities and Shareholders' equity | 26,442 | |
| REDD COMPANY | ||
| Statement of Cash Flow | ||
| Cash flow from operarting activities | ||
| Cash receipts from customers | 11,130 | |
| Cash payment to suppliers | (10,388) | |
| Cash payment for operating expenses | (1,600) | |
| Net cash from operations | (858) | |
| Cash flow from investing activities | ||
| Cash receipt from sale of land | 3,500 | |
| Net cash from investing activities | 3,500 | |
| Cash flow from financing activities | ||
| Cash receipt from issue of shares | - | |
| Net cash from financing activities | - | |
| Net increase in cash & cash equivalents | 2,642 | |
| Beginning cash balance | 16,800 | |
| Ending cash balance | 19,442 |
| Working notes | |||||||||
| Tabular Statement of Transactions | |||||||||
| Cash | Inventory | Land |
Accounts Receivable |
Accounts Payables |
Income/ (Expenses) |
Common Stock |
Retained Earnings |
Remarks | |
| Beginning balance | 16,800 | 4,000 | 2,000 | - | - | - | 12,000 | 10,800 | |
| Purchased Inventory | 11,200 | 11,200 | - | ||||||
| Freight paid in Cash | (800) | 800 | Cost of Goods Sold | ||||||
| Returned inventory | (600) | (600) | - | ||||||
| Paid to Ross Company | (10,388) | (10,600) | (212) | Cost of Goods Sold | |||||
| Sold Inventory | 13,500 | (13,500) | Sales | ||||||
| Sold Inventory | (8,000) | 8,000 | Cost of Goods Sold | ||||||
| Sales Return | (2,100) | 2,100 | Sales returns & allowances | ||||||
| Sales Return | 1,200 | (1,200) | Cost of Goods Sold | ||||||
| Sales Return | (2,100) | 2,100 | - |
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