Problem 3-23 Effect of purchase returns and allowances and purchase discounts on

Question

Problem 3-23 Effect of purchase returns and allowances and purchase discounts on the financial statements: Perpetual system The following events were completed by Yang's Imports in September 2014. Sept. 1 Acquired $30,000 cash from the issue of common stock. Purchased $18,000 of merchandise on account with terms 2/10, n/30 Paid $400 cash for freight to obtain merchandise purchased on September Sold merchandise that cost $10,000 to customers for $19.000 on account, with terms 2/10, n/30 Returned $750 of defective merchandise from the September I purchase to the supplier Paid cash for the balance due on the merchandise purchased on September l Received cash from customers of September & sale in settlement of the account bal- ances, but not within the discount period 1 s 8 8 10 20 30 Paid $2,450 cash for selling expenses Required a. Record each event in a statements model like the following one. The first event is recorded as an example Assets Liab.+ Rev. - Exp. = Net Inc.-|Cash Flow Cash + Accts. Rec. + Inv. = Accts. Pay. + Com. Stk. + ReL Earn. 30,000+ NA NA NA30,000 NA NA NANA 30,000 FA b. Prepare an income statement for the month ending September 30 c. Prepare a statement of cash flows for the month ending September 30 d. Explain why there is a difference between net income and cash flow from operating activities

Explanation / Answer

a.

b.

c.

d. There is a difference between net income and cash flow from operating activities to the tune of $7305 [$6550 - (-755)] because cash paid for inventory is $17305 however cost of inventory sold is only $10000 while $7305 is lying as inventory balance in assets.

Date Assets = Liabilities + Equity Income Statement Cash Flow Cash + Accounts Receivable + Inventories = Accounts
Payable + Common Stock Retained Earnings Revenue - Expense = Net Income Sept. 1 30000 + NA + NA = NA + 30000 NA NA - NA = NA 30000 FA 1 NA + NA + 18000 = 18000 + NA NA NA - NA = NA NA NA 5 -400 + NA + 400 = NA + NA NA NA - NA = NA -400 OA 8 NA + 19000 + NA = NA + NA 19000 19000 - NA = 19000 NA NA NA + NA + -10000 = NA + NA -10000 NA - 10000 = -10000 NA NA 8 NA + NA + -750 = -750 + NA NA NA - NA = NA NA NA 10 -16905 + NA + -345 = -17250 + NA NA NA - NA = NA -16905 OA 20 19000 + -19000 + NA = NA + NA NA NA - NA = NA 19000 OA 30 -2450 + NA + NA = NA + NA -2450 NA - 2450 = -2450 -2450 OA 29245 + 0 + 7305 = 0 + 30000 6550 19000 - 12450 = 6550 29245 36550 0 36550

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