Question

Hello,

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?

Thanks,

The following trial balance pertains to Benji’s Grocery as of January 1, 2018:

Account Title	Beginning Balances
Cash		$	64,000
Accounts receivable			12,000
Merchandise inventory			90,000
Accounts payable			7,500
Common stock			89,000
Retained earnings			69,500

The following events occurred in 2018. Assume that Benji’s uses the periodic inventory method.

1. Purchased land for $30,000 cash.

2. Purchased merchandise on account for $230,000, terms 1/10, n/45.

3. Paid freight of $2,100 cash on merchandise purchased FOB shipping point.

4. Returned $8,600 of defective merchandise purchased in Event 2.

5. Sold merchandise for $186,000 cash.

6. Sold merchandise on account for $236,000, terms 2/10, n/30.

7. Paid cash within the discount period on accounts payable due on merchandise purchased in Event 2.

8. Paid $28,500 cash for selling expenses.

9. Collected $156,000 of the accounts receivable from Event 6 within the discount period.

10. Collected $56,000 of the accounts receivable but not within the discount period.

11. Paid $17,100 of other operating expenses.

12. A physical count indicated that $48,300 of inventory was on hand at the end of the accounting period.

Required:

1. Record the preceding transactions in a horizontal statements model. In the Cash Flows column, use OA to designate operating activity, IA for investing activity, FA for financing activity, NC for net change in cash and NA to indicate accounts not affected by the event. The beginning balances have been recorded as an example.

2. Prepare a schedule of cost of goods sold and an income statement.

Answer 1

a) HORIZONTAL STATEMENT:
		Cash	AR	Inve	Land	EQUAL TO	AP	CS	RE
OB	ACTIVITY	64000	12000	90000		EQUAL TO	7500	89000	69500
Land pur	INVESTING	-30000			30000	EQUAL TO
Inv pur	OPERATING			230000		EQUAL TO	230000
freight inward	OPERATING	-2100		2100		EQUAL TO
Inv returned	OPERATING			-8600		EQUAL TO	-8600
Sales	OPERATING	186000				EQUAL TO			186000
credit sales	OPERATING		236000			EQUAL TO			236000
paid AP	OPERATING	-219186				EQUAL TO	-221400		2214	Discount reced (230000-8600)*1%
selling exp paid	OPERATING	-28500				EQUAL TO			-28500
cash collected	OPERATING	152880	-156000			EQUAL TO			-3120	Discount given (156000*2%)
cash collected	OPERATING	56000	-56000			EQUAL TO
Oexp paid	OPERATING	-17100				EQUAL TO			-17100
COGS	OPERATING			-265200		EQUAL TO			-265200
Total		161994	36000	48300	30000	EQUAL TO	7500	89000	179794
Grand Total					276294	EQUAL TO	276294
b) COST OF GOODS SOLD:
	Amount $
INVENTORY OB	90000
Add: Purchases	223500
(230000+2100-8600)
Less: CB	-48300
COGS	265200
INCOME STATEMENT:
	Amount $
SALES	422000
DISCOUNT RECD.	2214
TOTAL BENEFITS	424214
Less:COGS	-265200
GROSS PROFIT	159014
LESS:EXPENSES:
Discount outward	3120
Operating expeses	17100
Selling Expenses	28500
Total Expenses	48720
Net Income	110294