At the beginning of Year 2, the Redd Company had the following balances in its accounts: Cash Inventory Common stock Retained earnings $7,500 1,500 7,000 2,000 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash. 2. Returned $350 of the inventory it had purchased because the inventory was damaged in transit. The seller agreed to pay the return freight cost. 3. Paid the amount due on its account payable to Ross Company within the cash discount period. 4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer for $750 cash. The customer was paid $750 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $550 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Took a physical count indicating that $1,200 of inventory was on hand at the end of the accounting period. REDD COMPANY Horizontal Statements Model - Year 2 Balance Sheet Income Statement = Liabilities + Stockholders' Equity Net Merchandise Accounts Common Retained Revenue - Expenses = Income Inventory Payable Stock Earnings 1,500 = 7,000 + 2,000 - Event Statement of Cash Flows Assets Cash + Accounts Receivable 7,500 + + + + Bal. + + 1a. + + 1b. (560)| + + +1 2. + + 3. + + + + 4a. + + 4b. + + 5a + 5b + + 6. + + +1 7. + + 8. + Bal. $ 6,940 + $ 0 + $ 1,500 $ 0 + $ 7,000 + $ 2,000 $ 0 $ 0 = $ 0 $ 0