Question

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I have a hard time solving this question. Can anyone please help me to solve this problem and send me the step by step solution? This question is based on Perpetual Inventory Method.

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Problem 3-26 Comprehensive cycle problem: Perpetual system LO 3-2, 3-3, 3-4, 3-5

[The following information applies to the questions displayed below.]

At the beginning of 2018, the Redd Company had the following balances in its accounts:

  

Cash	$	7,500
Inventory		1,500
Common stock		7,000
Retained earnings		2,000

  Problem 3-26 Part b - Note: This Problem uses the Perpetual Inventory System

During 2018, the company experienced the following events:

1. Purchased inventory that cost $5,000 on account from Redd Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash.

2. Returned $350 of the inventory that it had purchased 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 Redd Company within the cash discount period.

4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45.

5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer for $750 cash. The customer was paid $750 cash for the returned merchandise.

6. Delivered goods FOB destination in Event 4. Freight costs of $550 were paid in cash.

7. Collected the amount due on the account receivable within the discount period.

8. Took a physical count indicating that $1,200 of inventory was on hand at the end of the accounting period.

1. c-1. Prepare a multistep income statement.

2. c-2. Prepare a statement of changes in stockholders’ equity.

3. c-3. Prepare a balance sheet.

4. c-4. Prepare a statement of cash flows.

Evaluation

Based on the financial statements, write a paragraph evaluating the company's performance for the year. Comment on the profitability, cash flows and balance sheet strength.

Answer 1

Income Statement
	$	$
Sales Rvenue	8,500
Less: Sales return	(750)
Net Sales Revenue ( A )		7,750
Cost of goods sold;
Beginning inventory	1,500
Purchases                                                             $ 5,000
Less : Purchases return                                     ( 350 )	4,650
Inward Freight Cost	450
Cost of goods available for sale	6,600
Less: Ending Inventory	(1,200)
Cost of goods sold   ( B )		5,400
Gross Profit ( C ) = ( A ) - ( B )		2,350
Other income;
Cash discount earned ( $ 4,650 x 2 % ) ( D )		93
Other expenses;
Outward Freight Cost	550
Cash discount allowed ( $ 7,750 x 2% )	155
Total Other expenses ( E )		705
Net income ( C ) + ( D ) - ( E )		1,738
statement of changes in stockholders’ equity.
	$	$
Common Stock		7,000
Beginning Balance of Retained Earnings	2,000
Add: Net income	1,738
Ending Balance of Retained Earnings		3,738
Total Stockholder's equity		10,738
Cash flow statement
	$	$
Cash fromoperating activity;
Inward Freight Cost paid	(450)
Cash paid to supplier ( $ 5,000 - $ 350 - $ 93 )	(4,557)
Outward freight cost paid	(550)
Cash collected from customer ( $ 8,500 - $ 750 - $ 155)	7,595
Net cash from operating activities		2,038
Add: Beginning cash balance		7,500
Ending balance of cash		9,538

Balance Sheet
	Equity and liabilities	$	Assets	$
	Stockholder's Equity	10,738	Inventory	1200
			Cash	9538
	TOTAL	10,738	TOTAL	10,738