Question

4 Required information Exercise 4-12A Effect of purchase returns and allowances and freight costs on the journal, ledger, and financial statements: Perpetual system LO 4-2,4-4, 4-6 [The following information applies to the questions displayed below) The trial balance for Terry's Auto Shop as of January 1 Year 2, follows: Account Titles Debit Credit 516,000 Inventory $20,000 Retained Earnings Total Cash 8.000 Common stock 524.00 $24,000 The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $15.000 2. The goods in Event I were purchased Foe shipping point with freight cost of $800 cash 3. Returned $2.600 of damaged merchandise for credit on account 4. Agreed to keep other damaged merchandise for which the company received an $1100 allowance 5. Sold merchandise that cost $15,000 for $31000 cash 6. Delivered merchandise to customers in Events under terms Fon destination with eight costs amounting to $500 7. Pald 58.000 on the merchandise purchased in Event 8 Paid 59.000 cash for operating expenses Exercise 4-12A Part c. Prepare a multe income statement balance sheet, and statement of cash flows. Assume that closing entries have been made

Answer 1

Answer:

TERRY'S AUTO SHOP Income Statement For the year ended December 31, year 2 Sales revenue $31,000 Cost of goods sold $15,000 Gross profit $16,000 Operating expenses Transportation-out $5001 Operating expenses $9,000 Net income $6,500 $33,800 TERRY'S AUTO SHOP Balance Sheet As of December 31, year 2 Assets Cash $28,700 Inventory $5,100 Total Assets Liabilities Accounts payable $3,300 Total Liabilities Stockholders' equity Common stock $20,000 Retained Earnings $10,500 Total Stockholders' equity Total liabilities & Stockholders' equity $3,300 $30,500 $33,800 TERRY'S AUTO SHOP Statement of Cash flows For the year ended December 31, year 2 Cash flow from operating activities Cash inflow from customers $31,000 Cash outflow for expenses -$9,500 Cash outflow for inventory -$8,800 Net cash flow from operating activities $12,700 Cash flow from investing activities $0 Cash flow from financing activities $0. Net change in cash $12,700 Add: Beginning cash balance $16,000 Ending cash balance $28,700

● Retained earnings end balance = Beginning balance + Net income = $4,000 + $6,500 = $10,500

Cash outflow for expenses include cash paid for transportation out $500 and cash paid for suppliers $8,000.

In order to prepare income statement, Balance sheet and cash flow statement, it is necessary to prepare journal entries and t-accounts.

Journal entries:

Credit Event General Journal 1 Merchandise inventory Accounts payable Debit 15,000 15,000 2 800 Merchandise inventory Cash 800 2,600 Accounts payable Merchandise inventory 2,600 4 1,100 Accounts payable Merchandise inventory 1,100 5 31,000 Cash Sales revenue 31,000 6 15,000 Cost of goods sold Merchandise inventory 15,000 7 500 Transportation-out Cash 500 8 Accounts payable Cash 8,000 8,000 9 9,000 Operating expense Cash 9,000

T- accounts:

Retained Earnings Cash $16,000 $31,000 Beg. Bal 5) $4,000 2) 7) Beg. bal $800 $500 $8,000 $9,000 Balance $4,000 O Balance $28,700 Sales Revenue Beg. Bal Beg. bal Inventory $8,000 3) $15,000 4) $800 6) $2,600 $1,100 $15,000 $0 $31,000 1) 2) 5) Balance $31,000 Balance $5,100 3) Accounts payable $2,600 Beg. bal $1,100 1) $8,000 $0 $15,000 Beg. bal 6) Cost goods sold $0 $15,000 8) Balance $15,000 Balance $3,300 Common Stock Beg. bal $20,000 Beg. bal Transportation - out $0 $500 7) Balance $20,000 Balance $500 Beg. bal Operating expense $0 $9,000 Balance $9,000