Powell Company began the 2018 accounting period with $49,000 cash, $95,000 inven

Question

Powell Company began the 2018 accounting period with $49,000 cash, $95,000 inventory, $69,000 common stock, and $75,000 retained earnings. During 2018, Powell experienced the following events: 1. Sold merchandise costing $62,500 for $108,500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $800 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,900 and were sold to Prentise for $6,600 4. Granted Prentise a $3,900 allowance for damaged goods that Prentise agreed to keep 5. Collected partial payment of $89,500 cash from accounts receivable. Required a. Record the events in a statements model shown below. b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods?

Explanation / Answer

POWEL COMPANY Financial Statement Model for 2018 Event Assets Equalto Stock holders equity Income Statement Statement of cash flows No. Cash Plus Accounts receivable Plus Inventory Equalto Common stock Plus Retained Earning Revenue Minus Expense Equalto Net Income Bal $49,000 Plus Plus $95,000 Equalto $69,000 Plus $75,000 Minus Equalto 1a Plus Plus Equalto Plus $108,500 Minus $62,500 Equalto $46,000 1b Plus $108,500 Plus ($62,500) Equalto Plus $46,000 Minus Equalto 2 Plus Plus Equalto Plus Minus $800 Equalto ($800) 3a Plus Plus Equalto Plus ($6,600) Minus ($4,900) Equalto ($1,700) 3b Plus ($6,600) Plus $4,900 Equalto Plus ($1,700) Minus Equalto 4 Plus ($3,900) Plus Equalto Plus ($3,900) ($3,900) Minus Equalto ($3,900) 5 $89,500 Plus ($89,500) Plus Equalto Plus Equalto $89,500 POWEL COMPANY Income Statement For the year ended December 31,2018 Revenue $98,000 (108500-6600-3900) Cost of goods sold $57,600 (62500-4900) Gross Income $40,400 Operating expenses $800 (800+3900) Net Income $39,600 (40400-4700) POWEL COMPANY Balance Sheet As on December 31,2018 ASSETS Cash $138,500 (49000+89500) Account Receivable $8,500 (108500-6600-3900-89500) Inventory $37,400 (95000-62500+4900) Total assets $184,400 Liabilities $0 Shareholders Equity Common stock $69,000 Retained Earnings $115,400 (75000+46000-1700-3900) Total Liabilities & Shareholders equity $184,400 CASH FLOW STATEMNT Cash flow from operating activities $89,500 Get goods at reduced cost X Can resell the damaged goods X Repair the damaged goods Retain the damaged goods

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