At the beginning of Year 2, the Redd Company had the following balances in its a

Question

At the beginning of Year 2, the Redd Company had the following balances in its accounts:

During Year 2, the company experienced the following events:

1. Purchased inventory that cost $5,800 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $530 were paid in cash.

2. Returned $300 of the inventory 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 $6,300 for $9,300 on account, under terms 2/10, n/45.

5. Received merchandise returned from a customer. The merchandise originally cost $530 and was sold to the customer for $830 cash. The customer was paid $830 cash for the returned merchandise.

6. Delivered goods FOB destination in Event 4. Freight costs of $630 were paid in cash.

7. Collected the amount due on the account receivable within the discount period.

8. Took a physical count indicating that $2,000 of inventory was on hand at the end of the accounting period.

Cash $ 8,300 Inventory 2,300 Common stock 7,800 Retained earnings 2,800 Reg CReg CaRea c3Reg Ca Req C3 Prepare a multistep income statement. REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Net sales $ 9,300 -m101 (830) ICost of goods sold' IT Gross margin 2.250 Ga Operating expenses Transportation-out Net income 1434

Explanation / Answer

Income Statement:

Event Account Debit Credit 1a Merchandise Inventory 5800 1a Accounts Payable 5800 1b Merchandise Inventory 530 1b Cash 530 2 Accounts Payable 300 2 Merchandise Inventory 300 3a Accounts Payable 110 (5800-300)*2% 3a Merchandise Inventory 110 3b Accounts Payable 5390 (5800-300-110) 3b Cash 5390 4a Accounts Receivable 9300 4a Sales Revenue 9300 4b Cost of Goods Sold 6300 4b Merchandise Inventory 6300 5a Sales Revenue 830 5a Cash 830 5b Merchandise Inventory 530 5b Cost of Goods Sold 530 6 Transportation Out 630 6 Cash 630 7a Sales Revenue 186 9300*2% 7a Accounts Receivable 186 7b Cash 9114 9300-186 7b Accounts Receivable 9114 8 Cost of Goods Sold 450 Working below 8 Merchandise Inventory 450 Working Beginning Balance 2300 Purchase 5800 Freight 530 Return 530 Return -300 Discount -110 Sale -6300 Balance Should be 2450 Actual Balance 2000 Entry to be posted 450

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