Question

At the beginning of 2016, the Redd Company had the following balances in its accounts:

Cash	$16,800
Inventory	7,000
Land	2,600
Common stock	15,000
Retained earnings	11,400
During 2016, the company experienced the following events: 1. Purchased inventory that cost $11,800 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $860 were paid in cash. 2. Returned $750 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 Ross Company within the cash discount period. 4. Sold inventory that had cost $9,500 for $15,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $1,500 and was sold to the customer for $2,700 cash. The customer was paid $2,700 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $750 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $4,700. 9. Recognized accrued interest income of $550. 10. Took a physical count indicating that $7,100 of inventory was on hand at the end of the accounting period.

d.	Prepare a multistep income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows. (Statement of Cash Flows only, items to be deducted must be indicated with a negative amount.)

        

        

REDD COMPANY Income Statement Assets For the Year Ended December 31, 2016 Operating expenses Total assets Liabilities Stockholders' Equity Nonoperating items Total stockholders' equity 0 Total liabilities and stockholders' equity $ 0 REDD COMPANY REDD COMPANY Statement of Cash Flows Statement of Changes in Stockholders' Equity For the Year Ended December 31, 2016 For the Year Ended December 31, 2016 Cash flow from operating activities 0 Net cash flow from operating activities $ 0 $ 0 Cash flows from investing activities Total stockholders' equity Cash flows from financing activities COMPANY lan E Balance Sheet As of December 31, 2016

        

        

Answer 1

d.

Redd Company Income Statement For the year ended December 31, 2016
Income from Operations	$	$
Sales		15,500
Less: Sales Returns and Allowances	(2,700)
Less: Sales Discount	(310)	(3,010)
Net Sales		12,490
Cost of Goods Sold		11,589
Gross Profit		901
Operating Expenses
Freight Out		750
Income from Operations		151
Nonoperating Items
Gain on Sale of Land	2,100
Interest Revenue	550	2,650
Net Income		2,801

Redd Company Statement of Cash Flows For the year ended December 31, 2016
Cash Flows from Operating Activities	$	$
Net Income		2,801
Adjustments to reconcile net income to net cash provided by operations
Gain on sale of land	-2,100
Interest revenue	- 550
Increase in Inventory	-100	-2,750
Net cash provided by Operating Activities		51
Cash Flows from Investing Activities
Cash from sale of Land	4,700
Net cash flows fro Investing Activities		4,700
Cash Flows from Financing Activities		NIL
Net increase ( decrease) in cash		4,751
Beginning cash balance		16,800
Ending cash balance		21,551

Redd Company Balance Sheet December 31, 2016
Assets	$
Cash	21,551
Inventory	7,100
Interest Receivable	550
Total Assets	29,201
Liabilities	Nil
Stockholders' Equity
Common Stock	15,000
Retained Earnings	14,201
Total Liabilities and Stockholders' Equity	29,201

Workings:

In the books of Redd Company:

Transaction / Event	Account Titles	Debit	Credit
		$	$
1.	Inventory	12,660
	Accounts Payable		11,800
	Cash		860
2.	Accounts Payable	750
	Inventory		750
3.	Accounts Payable	11,050
	Inventory		221
	Cash		10,829
4.	Accounts Receivable	15,500
	Sales		15,,500
4.	Cost of Goods Sold	9,500
	Inventory		9,500
5.	Sales Returns and Allowances	2,700
	Cash		2,700
5.	Inventory	1,500
	Cost of Goods Sold		1,500
6.	Freight-out	750
	Cash		750
7.	Cash	15,190
	Sales Discount	310
	Accounts Receivable		15,500
8.	Cash	4,700
	Land		2,600
	Gain on Sale of Land		2,100
9.	Interest Receivable	550
	Interest Revenue		550
10.	Cost of Goods Sold	3,589
	Inventory		3,589