Question

1 . Powell Company began the Year 3 accounting period with $40.000 cash $86,000 inventory $60,000 common stock, and $66,000 retained earnings. During Year 3, Powell experienced the following events: points 02:22:24 1. Sold merchandise costing $58.000 for $99.500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination Freight costs were $900 cash 3. Received returned goods from Prentise. The goods cost Powell $4,000 and were sold to Prentise for $5,900 4. Granted Prentise a $2.000 allowance for damaged goods that Prentise agreed to keep 5. Collected partial payment of $81000 cash from accounts receivable Required 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

1. Accounting Equation -

Assets Income Statement Accounts Powell Company Financial Statement Model for Year 3 Stockholder's Equity Common Retained Revenue Stock Earnings $ 60,000 $ 66,000 $ 99,500 Statement of Cash Flow Event No Cash + + + + Net Income Receivable Expenses = Merchandise Inventory $ 86,000 $ (58,000) Bal. $ 40,000 1 $ 99,500 2 $ (900) $ 58,000 $ 900 $ (4,000) (900) 3 $ 4,000 $ (5,900) $ 41,500 $ (900) $ $ (1,900) $ (3,000) $ $ (5,900) $ (3,000) $ (81,000) 4 $ 3,000 5 $ 81,000 81,000 $ 120,100 + $ 9,600 + $ 32,000 = $ 60,000 + $ 66,000 + $ 93,600 - $ 57,900 = $ 35,700$ 80,100

2. Income Statement -

Powell Company Income Statement For the Year Ended December 31, Year 3 Revenue $ 99,500 (-) Sales Return $ (5,900) Net Revenue Cost of Goods Sold Gross Profit Expenses: Freight Expenses $ 900 Allowances for Damaged Goods $ 3,000 Total Expenses $ 93,600 $ 54,000 $ 39,600 $ 3,900 Net Income $ 35,700

3. Balance Sheet -

Powell Company Balance Sheet As of December 31, Year 3 Assets Cash $ 120,100 Accounts Receivable $ 9,600 Merchandise Inventory $ 32,000 Total Assets Liabilities and Stockholder's Equity Stockholder's Equity Common Stock $ 60,000 Retained Earnings $ 66,000 (+) Net Income $ 35,700 Total Stockholder's Equity Total Liabilities and Stockholder's Equity $ 161,700 $ 161,700 $ 161,700

4. Statement of Cash Flow -

Powell Company Statement of Cash Flow For the Year Ended December 31, Year 3 Cash flow from Operating Activities Cash from Customers $ 81,000 Cash Payment for Expenses $ (900) Net Cash flow from Operating Activities $ 80,100 Cash flow from Investing Activities Cash flow from Financing Activiti Change in Cash $ 80,100 Cash at the beginning Cash at the End $ 40,000 $120,100

5. Why would Prentise agree to keep the damaged foods?

Answer -

Powell Company agree to keep the damaged goods due to all of the below reasons -

Get Goods at reduced Cost

Can Resell the damaged goods

Repair the damaged Goods

Retain the damaged goods