Question

Powell Company began the 2018 accounting period with $36,000 cash, $74,000 inventory, $55,000 common stock, and $55,000 retained earnings. During 2018, Powell experienced the following events: 1. Sold merchandise costing $47,000 for $99,000 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $700 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,600 and were sold to Prentise for $6,600. 4. Granted Prentise a $2,600 allowance for damaged goods that Prentise agreed to keep 5. Collected partial payment of $79,000 cash from accounts receivable. Required a. Record the events in a statements model shown below. b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods?

Answer 1

Event No	Cash	+	Accounts Receivable	+	Inventory	=	Common Stock	+	Retained Earnings	Revenue	–	Expenses	=	Net Income	Statement of Cash Flows
Bal.	36000	+		+	74000	=	55000	+	55000		–		=
1a.		+	99000	+		=		=	99000	99000	–	0	=	99000	NA
1b.					-47000				-47000			47000		-47000	NA
2	-700	+		+		=		+	-700		–	700	=	-700	OA
3a.			-6600						-6600	-6600				-6600	NA
3b.					4600				4600			-4600		4600	NA
4		+	-2600	+		=		+	-2600	-2600	–		=	-2600	NA
5	79000	+	-79000	+		=		+			–		=
Total	114300	0	10800		31600		55000		101700	89800		43100		46700

POWELL COMPANY
Income Statement
For the Year Ended December 31, 2018
Sales
Sales	99000
Less: Sales return & allowances	-9200
Net sales	89800
Less: Cost of good sold (47000-4600)	42400
Less: Misc expense	700
Net Income	46700
Prepare a balance sheet for Powell Company.
POWELL COMPANY
Balance Sheet
As of December 31, 2018
Assets
Cash	114300
Accounts receivable	10800
Merchandise inventory	31600
Total assets		156700
Liabilities
Stockholders’ equity
Common stock	55000
Retained earnings	101700
Total stockholders' equity		156700
Total liabilities and stockholders' equity		156700
statement of cash flows for Powell Company.
POWELL COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flow from operating activities
Cash received from customers	79000
Cash paid for freight out	-700
Net cash flow from operating activities		78300
Cash flows from investing activities		0
Cash flows from financing activities		0
Net change in cash		78300
Beginning balance		36000
Ending cash balance		114300
Ans 4
Get goods at a reduced cost.	TRUE
Can resell the damaged goods.	TRUE
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