Custom Auto Parts (CAP) started the Year 2 accounting period with the balances given in the horizontal financial statements model shown below. During Year 2, CAP experienced the following business events:
1. Purchased $60,000 of merchandise inventory on account, terms 2/10, n/30.
2. The goods that were purchased in Event 1 were delivered FOB shipping point. Freight costs of $1,500 were paid in cash by the responsible party.
3. Returned $3,000 of goods purchased in Event 1.
4a. Recorded the cash discount on the goods purchased in Event 1.
4b. Paid the balance due on the account payable within the discount period.
5a. Recognized $59,000 of cash revenue from the sale of merchandise.
5b. Recognized $45,000 of cost of goods sold.
6. The merchandise in Event 5a was sold to customers FOB destination. Freight costs of $1,400 were paid in cash by the responsible party.
7. Paid cash of $9,000 for selling and administrative expenses.
8. Sold the land for $14,500 cash.

Required
a. Show the above transactions in a horizontal financial statements model like the one shown next.

b. Prepare a multistep income statement. Include common size percentages on the income statement.
c. CAP’s gross margin percentage in the prior year was 34 percent. Based on the common size data in the income statement, did CAP raise or lower its prices in Year 2?
d. Assuming a 5 percent rate of growth, what is the amount of net income expected for Year 3?

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Balance Sheet Income Statement Statement of Cash Flows Assets Stk. Equlty = Llab. + Ret. Rev./ Accts. Com. Exp./ Loss Net Event No. Cash + Inventory + Land + Earn. = Pay. + Stk. Galn Inc. + 12,000 = -0- + 50,000 + 30,000 NA 8,000 NA Beg. Bal. NA 60,000 + NA