Problem

Effect of sales returns and allowances and freight costs on the journal, ledger, and finan...

Effect of sales returns and allowances and freight costs on the journal, ledger, and financial statements: Perpetual system

Cain Company began the 2011 accounting period with $18,000 cash, $60,000 inventory, $50,000 common stock, and $28,000 retained earnings. During the 2011 accounting period, Cain experi­enced the following events:

1. Sold merchandise costing $38,200 for $74,500 on account to Jones’s General Store.

2. Delivered the goods to Jones under terms FOB destination. Freight costs were $400 cash.

3. Received returned goods from Jones. The goods cost Cain Company $2,000 and were sold to Jones for $3,800.

4. Granted Jones a $1,000 allowance for damaged goods that Jones agreed to keep.

5. Collected partial payment of $52,000 cash from accounts receivable.

Required

a. Record the transactions in general journal format.


b. Open general ledger T-accounts with the appropriate beginning balances and post the journal entries to the T-accounts.


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


d. Why would Cain grant the $1,000 allowance to Jones? Who benefits more?

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