Academy Sales Company (ASC) started the Year 2 accounting period with the balances given in the financial statements model shown as follows. During Year 2, ASC experienced the following business events: 1. Purchased $27,000 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 $710 were paid cash by the responsible party. 3. Returned $500 of goods purchased in Event 1. 4. (a) Recorded the cash discount on the goods purchased in Event 1. (b) Paid the balance due on the account payable within the discount period. 5. (a) Recognized $34,000 of cash revenue from the sale of merchandise. (b) Recognized $26,000 of cost of goods sold. 6. The merchandise in Event 5a was sold to customers FOB destination. Freight costs of $1,060 were paid in cash by the responsible party. 7. Paid cash of $5,100 for selling and administrative expenses. 8. Sold the land for $9,800 cash. Required a. Record these transactions in a financial statements model. b. Prepare a schedule of cost of goods sold (Appendix). c. Prepare a multistep income statement. Include common size percentages on the income statement. d. ASC's gross margin percentage in Year 1 was 22 percent. Based on the common size data in the income statement, did ASC raise or lower its prices in Year 2 (Appendix)? e. Assuming a 10 percent rate of growth, what is the amount of net income expected for Year 3? Complete this question by entering your answers in the tabs below. Req A Event No. Bal. 1. Record these transactions in a financial statements model. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NC for Net change in cash. Enter any decreases to account balances with a minus sign. Not all cells require input. If there is no effect on the Account Titles for Statement of Cash Flows, leave the cell blank.) 2. 3. 4a. 4b. 5a. 5b. 6. 7. Req B 8. Totals Assets + Inventory + 40,000 + Cash + 710 + + + (26,469) + 34,000+ Req C (1,060) + (5,100) + 9,800 + 51,881 + 7,000+ 27,000 + (710) + (500) + (530) + (26,000) Req D and E 6,260 + Land Balance Sheet 9,000 = Liabilities + Accounts Payable = = = = = = = = - (9,000) = 0] = + 0 + 27,000 + + (500) + (530) + (26,460) + + + + + + (490) + ACADEMY SALES COMPANY Financial Statements Model Stockholders' Equity Common Stock + 29,000 + + + + + + + + + + + 29,000 + Retained Revenue/ Earnings Gain 27,000 34.000 (26,000) (1,060) (5,100) 800 29,640 34,000 Income Statement. 800 34,800 - Expense = = - = = = 26.000 = 1,060 = 5,100 = = 32,160 = Net Income 34,000 (26,000) (1,060) (5,100) 800 2,640 Statement of Cash Flows (710) OA (26,460) OA 34,000 OA (1,060) OA (5,100) OA 9,800 FA 10,470 NC Show less A Req A Req B Req C Cost of goods sold Prepare a schedule of cost of goods sold (Appendix). ACADEMY SALES COMPANY Schedule of Cost of Goods Sold For the Period Ended December 31, Year 2 Beginning inventory Plus: Purchases Less: Purchase returns and allowances Less: Purchases discounts Plus: Transportation-out Goods available for sale Req D and E Req B Req D and E Prepare a multistep income statement. Include common size percentages on the income staten answers to 1 decimal place.) ACADEMY SALES COMPANY Income Statement For the Period Ended December 31, Year 2 $ 34,000 (26,000) 8,000 Req A Net sales Cost of goods sold Gross margin Less: Operating expenses Selling and administrative expense Transportation-out Operating loss Nonoperating items Gain on the sale of land Req C Net income (5,100) (1,060) (6,160) (4,320) 800 (3,520) 100.0 % 100.0 100.0 8.9 108.9 Req B Req D and d. ASC's gross margin percentage in Year 1 was 22 percent. Based on the common size data in the income statement, did ASC raise or lower its prices in Year 2 (Appendix)? e. Assuming a 10 percent rate of growth, what is the amount of net income expected for Year 3? Req A d. Sales prices e. Net income Req C Raise