Question

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 Inventory Common stock Retained earnings $8,200 2,200 7, 700 2,700 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,700 on account from Ross Company under terms 2/10,n/30. The merchandise was delivered FOB shipping point. Freight costs of $520 were paid in cash. 2. Returned $350 of the inventory 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 Ross Company within the cash discount period. 4. Sold inventory that had cost $6.200 for $9.200 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $520 and was sold to the customer for $820 cash. The customer was paid $820 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $620 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Took a physical count indicating that $1,900 of inventory was on hand at the end of the accounting period.

Answer 1

Redd Company
Event		Classification
1a.	(Purchase inventory).	AS
1b.	(Shipping cost).	AE
2	Purchase returns	AU
3	Payment to creditors	AU
4a.	(Recording revenue).	AS
4b.	(Recording cost of goods sold).	AU
5a.	(Reversing revenue).	AU
4b.	(Reversing cost of goods sold).	AS
6	Freight costs	AU
7	Collections on account receivable	AU
8	Inventory write off	AU
	Simple explanation
	Asset source is increase in assets
	Asset use is decrease in assets
	Asset exchange is exchange of one asset for another asset
	Claims exchange is no change in asset, meaning exchange of liabilty for equity

Redd Company Horizontal Statement Balance Sheet Income Statement Statement of CF Stockholders Equity Liabilties Calculation Assets Event Cash Accounts Rec Inventory = Accounts PayableCommon Stock Retained Earnings RevenuesExpenses Net income Amount Discounts Activity Income Statement titles Bal 2,200= 2,700 8,200 7,700 + 5,700+ la 5,700 + 1b (520) 520 (520) OA + + + (350) (350) 2 + + (5,243) (107) (5,350)+ (5,243) OA -5,350*2% =107 + 9,200 9,200 Sales 4a 9,200 9,200 + + + (6,200) (820) Cost of goods sold 4b (6,200) (6,200) 6,200 + + + (820) (820) (820) (820) Sales returns & allowances 5a OA + 5b 520 520 (520) Cost of goods sold 520 + + + (620) (620)+ (620) (620) Freight costs 6 620 OA + + (9,200) (184) (184) (184) 9,200*2% =184 Sales discounts 7 9,016 + 9,016 OA + + (383) (383) (383) Cost of goods sold 8 383 + + + + Bal. 10,013 + 4,213 1,900 7,700 8,196 6,683 1,513 1,813 NC +

Redd Company Income Statement For the Year Ended December 31, Year 2 Sales Calculation 9,200 Less (820) Sales returns & allowances Sales discounts (184) Net Sales 8,196 Cost of goods sold 6,063 6,200-520+383 Gross Profit 2,133 Operating Expenses Freight costs 620 1,513 Net Income Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Beginning Common Stock 7,700 Issue of new shares Ending Common Stock Beginning Retained earnings 7,700 2,700 Net Income 1,513 Ending Retained earnings 4,213 Total Stockholders Equity 11,913

Redd Company Balance Sheet As of December 31, Year 2 Liabilities Liabilities 10,013 Accounts Payable Assets Current Assets Cash Accounts Receivable Merchandise Inventory 1,900 Stockholders Equity Common Stock 7,700 Retained earnings Total Stockholders Equity 4,213 11,913 11,913 Total Liabilities & Stockholders Equity Total Assets 11,913

Redd Company Statement of Cash Flows Calculation For the Year Ended December 31, Year 2 Cash flows from Operating Activities Cash received from customers 8,196 9,016-820 Cash paid to suppliers (5,243) Cash paid for freight in (520) Cash paid for freight out Net Cash Provided/(Used) by Operating Activities (620) 1,813 Cash flows from Investing Activities Net Cash Provided/(Used) by Investing Activities Cash flows from Financing Activities Net Cash Provided/(Used) by Financing Activities Net change in cash Beginning cash balance Ending cash balance 1,813 8,200 10,013