Effect of sales returns and allowances and freight costs on the financial statements: perp...

Effect of sales returns and allowances and freight costs on the financial statements: perpetual system

Stash Company began the 2012 accounting period with $10,000 cash, $38,000 inventory, $25,000 common stock, and $23,000 retained earnings. During the 2012 accounting period, Stash experienced the following events.

1.Sold merchandise costing $28,000 for $46,000 on account to Jack’s Furniture Store.

2.Delivered the goods to Jack’s under terms FOB destination. Freight costs were $500 cash.

3.Received returned goods from Jack’s. The goods cost Stash $2,000 and were sold to Jack’s for $3,000.

4.Granted Jack’s $2,000 allowance for damaged goods that Jack’s agreed to keep.

5.Collected partial payment of $25,000 cash from accounts receivable.

Required

a. Record the events in a statements model like the one shown below.

b.Prepare an income statement, a balance sheet, and a statement of cash flows.

c. Why would Stash grant the $2,000 allowance to Jack’s? Who benefits more?