Question

4 At the beginning of Year 2, the Redd Company had the following balances in its accounts: Part 4 of 5 Cash Inventory Land Common stock Retained earnings $ 6,900 15,880 7,800 15, eee 13,900 10 points During Year 2. the company experienced the following events: eBook Ask 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10. n/30. The merchandise was delivered FOB shipping point. Freight costs of $190 were paid in cash. 2. Returned $400 of the inventory it had purchased from Ross Company 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 $6,800 for $12,100 on account, under terms 2/10,n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1.680 cash. The customer was paid $1,680 cash for the returned merchandise 6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $8.500. 9. Recognized accrued interest income of $600. 10. Took a physical count indicating that $13.400 of inventory was on hand at the end of the accounting period. (Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down.) References Problem 4-26A Part d d. Prepare a multistep income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for year 2. (Statement of Cash Flows only, Items to be deducted must be Indicated with a minus slgn.)

Answer 1

1. Journal Entries -

Credit Date 1.1 REDD COMPANY Journal Entries Accounts Title Debit Inventory $ 5,200 Accounts Payable (Being Inventory Purchased on credit) $ 5,200 1.2 Freight In Charges $ 190 Cash $ 190 (Being Freight charges paid on FOB Shipping Point) 2 Accounts Payable $ 400 Inventory (Being Inventory returned to seller) $ 400 3 S 48 Accounts Payable $ 4,800 Discount on Purchase Cash (Being payment made on account) $ 4,752 4.1 Accounts Receivable $ 12,100 Sales Revenue (Being Sales made on account) $ 12,100 4.2 Cost of Goods Sold $ 6,800 Inventory (Being Cost of Goods sold incurred) $ 6,800 5.1 Sales Return $ 1,680 Cash (Being Sale returned and paid cash) $ 1,680 5.2 Inventory $ 900 Cost of Goods Sold (Being Cost of goods returned reveresed) $ 900 6 Freight Out Charges $ 140 Cash (Being Freight charges paid in cash) $ 140 7 Cash $ 11,858 Discount on Sales $ 242 Accounts Receivable (Being amount received on account) $ 12,100 8 $ 8.500 Cash Gain on sale of land Land $ 1,500 $ 7,000 (Being land sold and profit booked) 9 600 Interest Receivable $ Interest Revenue (Being interest accrued) $ 600 10 500 Cost Goods Sold $ Inventory (Being Inventory write down) $ 500

2. Income Statement -

REDD COMPANY Income Statement For Year 2 Sales Revenue (-) Sales Return (-) Freight Out (-) Sales Discounts $ 12,100 $ (1,680) $ (140) $ (242) $ 10,038 Cost of Goods Sold Op. Balance Inventory (+) Purchase (+) Freight in (-) Purchase Return (-) Discount on Purchase (-) Closing Inventory $ 15,000 $ 5,200 $ 190 $ (400) $ (48) $(13,400) $ 6,542 Gross Profit $ 3,496 Operating Income $ 3,496 Non Operating Income: Gain on sale of land Interest Revenue $ 1,500 $ 600 Net Income $ 5,596

3. Statement of Stockholder's Equity -

REDD COMPANY Statement of Stockholder's Equity For Year 2 Common Stock $ 15,000 Retained Earnings, Begninning $ 13,900 Add: Net Income $ 5,596 $ 19,496 Total Stockholder's Equity $ 34,496

4. Balance Sheet -

REDD COMPANY Balance Sheet For Year 2 Assets: Cash Inventory Interest Receivable Land $ 20,496 $ 13,400 $ 600 $ Total Assets $ 34,496 Liabilities: Stockholder's Equity: Common Stock Retained Earnings $ 15,000 $ 19,496 Total Stockholder's Equity $ 34,496

5. Cash Flow Statement -

REDD COMPANY Cash Flow Statement For Year 2 Cash Flow From Operating Activities Cash Received from Customers Cash Paid to Suppliers Cash Paid to Expenses Profit on sale of land $ 10,178 $ (4,752) $ (330) $ 1,500 Net Cash Flow From Operating Activities $ 6,596 Cash Flow From Investing Activities Sale of Land $ 7,000 Net Cash Flow From Investing Activities $ 7,000 Cash Flow From Financing Activities Net Cash Flow From Financing Activities $ Change in Cash $ 13,596 Cash at the beginning Cash at the end $ 6,900 $ 20,496