At the beginning of Year 2, the Redd Company had the following balances in its accounts.

Cash	$23,800
Inventory	5,000
Land	3,100
Common stock	20,000
Retained earnings	11,900

During Year 2, the company experienced the following events:

1. Purchased inventory that cost $12,300 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $910 were paid in cash.
2. Returned $500 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 $9,500 for $17,500 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $1,750 and was sold to the customer for $2,200 cash. The customer was paid $2,200 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $800 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Sold the land for $5,700.
9. Recognized accrued interest income of $800.
10. Took a physical count indicating that $4,200 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:

1. 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.
2. Record the events in general journal format. Assume that the perpetual inventory method and gross method is used.
3. 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.
4. Prepare a multistep income statement, a statement of changes in stockholders equity, a balance sheet, and a statement of cash flows for Year 2.
5. Use a single general journal 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.

Req A Reg B Reg C Req D1 Req D2 Req D3 Req D4 Req E1 Reg E2 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.) REDD COMPANY Effect of Events on the Financial Statements for Year 2 Balance Sheet Income Statement Event Event Type Statement of Cash Flows No. Assets = Liabilities + Stockholders' Equity Revenue Expenses Net Income 1a AS + + 1b AE +/- OA 2 3b 4a 4b 5a 5b 6 7a 7b | |8|9| 10 Reg A Reg B Reqc Reg D1 Reg D2 Req D3 Reg D4 Req E1 Req E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the entry for inventory purchased on account from Ross company under terms 1/10, n/30. Note: Enter debits before credits. Event General Journal Debit Credit 1 a Req A Req B Reqc Req D1 Req D2 Req D3 Reg D4 Reg E1 Req E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the entry for freight cost paid in cash. Note: Enter debits before credits Event General Journal Debit Credit 1b Req A Req B Reqc Reg Di Req D2 Req D3 Req D4 Reg E1 Reg E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the entry for return of inventory that was damaged in transit. Note: Enter debits before credits. Event General Journal Debit Credit 02 Req A Req B Reg C Req D1 Req D2 Req D3 Reg D4 Reg E1 Req EZ Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet B D E F G . O > Record entry for discount on inventory purchased. Note: Enter debits before credits. Event General Journal Debit Credit Req A Req B Reqc Reg D1 Req D2 Req D3 Reg D4 Req E1 Req E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the entry for cash paid for accounts payable. Note: Enter debits before credits. Event General Journal Debit Credit 3b Req A Req B Reqc Reg D1 Req D2 Req D3 Reg D4 Reg E1 Req E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry for sale of inventory on account. Note: Enter debits before credits. Event General Journal Debit Credit 4a Reg A ReqB Reg C Reg D1 Req D2 Req D3 Req D4 Req E1 Reg E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry for cost of goods sold. Note: Enter debits before credits. Event General Journal Debit Credit 4b Reg A Req B Reg C Req D1 Req D2 Req D3 Reg D4 Reg E1 Req E2 Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry for return of merchandise sold. Note: Enter debits before credits. Event General Journal Debit Credit 5 Req A Req B Reqc Req D1 Req D2 Req D3 Req D4 Req E1 Req EZ Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list Journal entry worksheet Record entry for inventory loss. Note: Enter debits before credits. Event General Journal Debit Credit 10 Req A Req B. Reqc Reg D1 Req D2 Req D3 Req D4 Reg E1 Req E2 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. Cash Inventory Beg. Bal. Beg. Bal. End. Bal. End. Bal End. Bal. Accounts Receivable Interest Receivable Beg. Bal. Beg. Bal. End. Bal. End. Bal. Land Accounts Payable Beg. Bal. Beg. Bal. End. Bal End. Bal. Common Stock Retained Earnings Beg. Bal. Beg. Bal. End. Bal. 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. Req A Req B Reg C Req D1 Reg D2 Req D3 Reg D4 Req E1 Req E2 Prepare a multistep income statement for Year 2. REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses Nonoperating items Req A Req B Reqc Reg D1 Req D2 Req D3 Req D4 Req E1 Req E2 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 Total stockholders' equity Reg A Req B Reqc Req D1 Req D2 Req D3 Reg D4 Req E1 Req E2 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 Req A Reg B Reg c Req D1 Req D2 Req D3 Req D4 Req E1 Req E2 Prepare a statement of cash flows for Year 2. (Cash outflows should be indicated with a minus sign.) REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flow from operating activities: Net cash flow from operating activities Cash flows from investing activities: Cash flows from financing activities: Ending cash balance Req A Req B Reqc Reg D1 Reg D2 Req D3 Reg D4 Reg E1 Reg E2 Use a single general journal entry to close all revenue, gain, and expense accounts to the retained earnings account. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry to close all revenue, gain, and expense accounts to the retained earnings account. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31 Req A Req B Reqc Reg D1 Req D2 Req D3 Reg D4 Req E1 Req E2 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