At the beginning of Year 2, the Redd Company had the following balances in its accounts: Cash Inventory Common stock Retained earnings $8,500 2,500 8,000 3,000 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $6,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $550 were paid in cash. 2. Returned $400 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 $6,500 for $9,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $550 and was sold to the customer for $850 cash. The customer was paid $850 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $650 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Took a physical count indicating that $2,200 of inventory was on hand at the end of the accounting period. b. Record each event in a statements model like the following one. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, and NC for net change in cash. The first event is recorded as an example. (Enter any decreases to account balances and cash outflows with a minus sign. Not all cells in the "Statement of Cash Flows" column may require an input - leave cells blank if there is no corresponding input needed.) 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 2,500 = 8,000 + 3,000 Event Statement of Cash Flows Assets Accounts Cash + Receivable 8,500 + + + + Bal + + 1a + + + + 1b + + = + + 2. 3. + 4a + + + + 4b. 5a. 5b + + + + = + + 6. T + = + + + + + 7. 8 8. + + Bal. $ 8,500 + $ 0 + S 2,500 $ 0+ $ 8,000 + $ 3,000 $ 0 - $ 0 = $ 0 $ 0 Prepare a multistep income statement. REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses REDD COMPANY Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Beginning common stock $ 0 Ending common stock Beginning retained earnings 0 Ending retained earnings Total stockholders' equity $ 0 REDD COMPANY Balance Sheet As of December 31, Year 2 Assets Total assets $ 0 Liabilities Stockholders' Equity $ 0 Total stockholders' equity Total liabilities and stockholders' equity $ $ 0 REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flows from operating activities $ 0 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $ 0
