Question

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

  

Cash	$	8,100
Inventory		2,100
Common stock		7,600
Retained earnings		2,600

  

During 2018, the company experienced the following events:

1. Purchased inventory that cost $5,600 on account from Redd Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $510 were paid in cash.

2. Returned $300 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 $6,100 for $9,100 on account, under terms 2/10, n/45.

5. Received merchandise returned from a customer. The merchandise originally cost $510 and was sold to the customer for $810 cash. The customer was paid $810 cash for the returned merchandise.

6. Delivered goods FOB destination in Event 4. Freight costs of $610 were paid in cash.

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

8. Took a physical count indicating that $1,800 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.

Answer 1

-1 Income Statement

Revenue (9,100 +810)	9,910
Less - Returns	-810	9100
Less :cost of sales Opening inventories Add: purchase Less : returns Add : freight (510-28) Less : closing inventory	2,100 5,600 7700 300 7,400    482 7,882 1,800	6,082
Gross profit		3,018
Add :other income Discount received		106 3,124
Less : expenses Freight outward Discount allowed	610      182	792
Net Profit		2,332

c-2 statement of changes in stockholders equity

                  Retained earning at the beginning            2,600

                  Add : profit for the year                           2,332

                  Retained earning at the end                     4,932

c-3   Balance Sheet

EQUITY		ASSETS
Common Stock	7,600	inventories	1,800
Retained Earning	4,932	Cash (8,100+810-810-510-610+8,918-5,166)	10,732
	12,532		12,532

c-4 Cash flow statement

Profit for the year	2,332
Add : decrease in inventories	300
Net increase in cash	2,632
Add : opening cash balance	8,100
Closing cash balance	10,732