At the beginning of Year 2, the Redd Company had the following balances in its accounts. Cash Inventory Land Common stock Retained earnings $17,300 7,500 2,700 16,000 11,500 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $11,900 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $870 were paid in cash the responsible party. 2. Returned $800 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 $8,000 for $16,000 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $1,550 and was sold to the customer for $2,800 cash. The customer was paid $2,800 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $760 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 $4,900. 9. Recognized accrued interest income of $600. 10. Took a physical count indicating that $7,200 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. Required: a. 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. b. Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. c. Post the beginning balances and the events to the T-accounts. Note that these ledger accounts will also be used when posting the closing entry that is created in Part e. d. Prepare a multistep income statement, a statement of changes in stockholders' equity, and a balance sheet for Year 2. e. Use a single general journal entry (i.e., compound entry) to close all revenue, gain, and expense accounts to the retained earnings account. Post the journal entry to the ledger accounts and prepare a post-closing trial balance. Show less 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 mo 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. If there is not cash activity in t event, leave the columns blank.) 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 +/- 2 3b ee