Powell Company began the Year 3 accounting period with $40,000 cash, $86,000 inventory, $60,000 common stock, and $66,000 retained earnings. During Year 3, Powell experienced the following events:
1. Sold merchandise costing $58,000 for $99,500 on account to Prentise Furniture Store.
2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $900 cash.
3. Received returned goods from Prentise. The goods cost Powell $4,000 and were sold to Prentise for $5,900.
4. Granted Prentise a $3,000 allowance for damaged goods that Prentise agreed to keep.
5. Collected partial payment of $81,000 cash from accounts receivable.

Required
a. Record the events in a horizontal financial statements model like the one shown as follows:

b. Prepare an income statement, a balance sheet, and a statement of cash flows.
c. Why would Prentise agree to keep the damaged goods? Who benefits more?

Transcribed Image Text:

Balance Sheet Income Statement Statement of Cash Flows Stk. Equlty Assets Exp. Accts. Rec. Com. Stk. Ret. Earn. Net Inc. Cash Inv. Rev.