Question

Required information Exercise 4-12A Effect of purchase returns and allowances and freight costs on the financial statements: Perpetual system LO 4-2, 4-4, 4-6 [The following information applies to the questions displayed below.] The beginning account balances for Terry's Auto Shop as of January 1, Year 2, follows: Account Titles Cash Inventory Common Stock Retained Earnings Beginning Balances $6,080 3,020 7,380 1,720 The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $4,110. 2. The goods in Event 1 were purchased FOB shipping point with freight cost of $245 cash. 3. Returned $455 of damaged merchandise for credit on account. 4. Agreed to keep other damaged merchandise for which the company received an $250 allowance. 5. Sold merchandise that cost $2,680 for $4,890 cash. 6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $175 cash. 7. Paid $2,970 on the merchandise purchased in Event 1.

Answer 1

Answer:

TERRY'S AUTO SHOP
Effect of Events on the Financial Statements
	Assets			=	Liabilities	+	Stockholders' Equity
Event	Cash	+	Inventory	=	Accounts Payable	+	Common Stock	+	Retained Earnings	Account Titles for Retained Earnings
Beg. Bal.	$6,080	+	$3,020	=		+	$7,380	+	$1,720
1		+	$4,110	=	$4,110	+		+
2	($245)	+	$245	=		+		+
3		+	($455)	=	($455)	+		+
4		+	($250)	=	($250)	+		+
5a.	$4,890	+		=		+		+	$4,890	Sales revenue
5b.		+	($2,680)	=		+		+	($2,680)	Cost of goods sold
6	($175)	+		=		+		+	($175)	Transportation out expenses
7	($2,970)	+		=	($2,970)	+		+
End. Bal.	$7,580	+	$3,990	=	$435	+	$7,380	+	$3,755