Effect of inventory transactions on the income statement and statement of cash flows: Perp...

Effect of inventory transactions on the income statement and statement of cash flows: Perpetual system

During 2012, Knight Merchandising Company purchased $15,000 of inventory on account. Knight sold inventory on account that cost $12,500 for $17,500. Cash payments on accounts payable were $10,000. There was $11,000 cash collected from accounts receivable. Knight also paid $3,500 cash for operating expenses. Assume that Knight started the accounting period with $14,000 in both cash and common stock.

Required

a. Identify the events described in the preceding paragraph and record them in a horizontal statements model like the following one:

b.What is the balance of accounts receivable at the end of 2012?

c. What is the balance of accounts payable at the end of 2012?

d. What are the amounts of gross margin and net income for 2012?

e. Determine the amount of net cash flow from operating activities.

f. Explain why net income and retained earnings are the same for Knight. Normally would these amounts be the same? Why or why not?