At the beginning of Year 2, the Redd Company had the following balances in its accounts. Cash Inventory Land Common stock Retained earnings $16,300 6,500 2,500 14,000 11,300 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $11,700 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $850 were paid in cash the responsible party. 2. Returned $700 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 $9,000 for $15,000 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $1,450 and was sold to the customer for $2,600 cash. The customer was paid $2,600 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $740 were paid in cash by the responsible party. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $4,500. 9. Recognized accrued interest income of $500. 10. Took a physical count indicating that $7,000 of inventory was on hand at the end of the accounting period. Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down. Identify each of these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event would affect the financial statements by placing a + for increase, for decrease, and +/- for increase and decrease under each of the components in the following statements model. Assume that the perpetual inventory method is used. When an event has more than one part, use letters to distinguish the effects of each part. The first event is recorded as an example. (In the Statement of Cash Flows column, use the Initials OA to designate operating activity, IA for investing activity, and FA for financing activity.) Show less A REDD COMPANY Effect of Events on the Financial Statements for Year 2 Balance Sheet Income Statement Event No. Statement of Assets Liabilities + Stockholders' Equity Revenue Expenses Net - Income Cash Flows 1a 1b +/- OA 2 3a 3b 4a 4b FF 5a 5b 6 7a 7b 8 9 10 Prepare a multistep income statement for Year 2. REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses Nonoperating items 0 0 $ 0 Prepare a statement of changes in stockholders' equity for Year 2. REDD COMPANY Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 $ 0 0 Total stockholders' equity $ 0 Prepare a balance sheet for Year 2. REDD COMPANY Balance Sheet As of December 31, Year 2 Assets Total assets Liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity $ 0 0 $ 0 1 Record entry to close all revenue, gain, and expense accounts to the retained earnings account. Note: Enter debits before credits. Date Dec 31 General Journal Debit Credit Record entry Clear entry View general journal Post the journal entry to the ledger accounts and prepare a post-closing trial balance. REDD COMPANY Post Closing Trial Balance December 31, Year 2 Account Titles Debit Credit Total $ 0 View transaction list Journal entry worksheet < A B C D E F G H Record the entry for inventory purchased on account from Ross company under terms 1/10, n/30. Note: Enter debits before credits. Event 1a General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet < A B C D E F G H Record the entry for freight cost paid in cash. Note: Enter debits before credits. Event 1b General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet < A B D E F G H Record the entry for return of inventory that was damaged in transit. Note: Enter debits before credits. Event 02 General Journal Debit Credit > Record entry Clear entry View general journal View transaction list Journal entry worksheet < A B D E F G H Record entry for discount on inventory purchased. Note: Enter debits before credits. Event 3a General Journal Debit Credit Record entry Clear entry View general journal View transaction list Journal entry worksheet Journal entry worksheet < A B C D E Record entry for sale of inventory on account. Note: Enter debits before credits. Event 4a G H General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet < A B C D E F G H 0 Record entry for cost of goods sold. Note: Enter debits before credits. Event 4b General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet > A B C D E F Record entry for return of merchandise sold. Note: Enter debits before credits. Event 5a G H General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet A .... D E F G H Record entry for cost of goods sold return. Note: Enter debits before credits. Event 5b O General Journal Debit Credit > Record entry Clear entry View general journal < A .... E F G H I J Record cash paid for freight charges for delivered goods. Note: Enter debits before credits. Event 06 General Journal Debit Credit Record entry Clear entry View general journal Journal entry worksheet < AF G HIJ K Record entry for discount on inventory sold. Note: Enter debits before credits. Event 7a General Journal Debit Credit Record entry Clear entry View general journal View transaction list Journal entry worksheet < A .... G H IJK L Record the entry for collection of amount due on the account receivable within the discount period. Note: Enter debits before credits. Event 7b General Journal Debit Credit Record entry Clear entry View general journal > Journal entry worksheet < A ... H 1 J K L Record the entry for the sale of land. Note: Enter debits before credits. Event 08 O General Journal Debit Credit > Record entry Clear entry View general journal ournal entry worksheet < A ... H I J K L M N > Record entry to recognized accrued interest income. Note: Enter debits before credits. Event 09 General Journal Debit Credit Record entry Clear entry View general journal Cash Inventory Beg. Bal. Beg. Bal. End. Bal. Accounts Receivable Beg. Bal. End. Bal. End. Bal End. Bal. Beg. Bal. End. Bal. Interest Receivable Land Beg. Bal. Accounts Payable Beg. Bal. End. Bal. End. Bal. Common Stock Beg. Bal. End. Bal. Beg. Bal. Retained Earnings End. Bal. Sales Revenue Cost of Goods Sold Beg. Bal. Beg. Bal. End. Bal. End. Bal. Transportation-out Interest Revenue Beg. Bal. Beg. Bal. End. Bal. End. Bal. Gain on Sale of Land Beg. Bal. End. Bal