Exercise 4-10B Effect of product cost and period cost: horizontal financial statements model Wild Rose Co. experienced the following events for the Year 1 accounting period: 1. Acquired $20,000 cash from the issue of common stock. 2. Purchased $36,000 of inventory on account. 3. Received goods purchased in Event 2 FOB shipping point. Transportation cost of $900 paid in cash. 4. Returned $4,000 of goods purchased in Event 2 because of poor quality. 5. Sold inventory on account that cost $28,000 for $82,000. 6. Transportation cost on the goods sold in Event 5 was $200. The goods were shipped FOB destination. Cash was paid for the transportation cost. 7. Collected $33,000 cash from accounts receivable. 8. Paid $27,000 cash on accounts payable. 9. Paid $4,500 for advertising expense. 10. Paid $7,200 cash for insurance expense. Required a. Which of these transactions affect period (selling and administrative) costs? Which result in product costs? If neither, label the transaction NA. b. Show each event in a horizontal financial statements model like the following one. The first event is recorded as an example. Assets Balance Sheet Llab. Income Statement + Stk. Equity Statement of Cash Flows NA Cash Accts. Rec. + Inv. Accts. Pay. +Com. Stk. + Ret. Earn. 20,000 + + NA= 20,000 + Rev.- NA + NA NA - Exp. Not Inc. NA= NA 20,000 FA a. Transaction Period Costs Product Costs Not Applicable 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. b. 1. Stock 2. Pur Inv. 3. Transport 4. Ret. Inv. 5a. Sold Inv. 5b. Cost 6. Pd. Frt. 7. Coll. AR 8. Pd. AP 9. Pd. Exp. 10. Pd. Exp. End. Bal. Wild Rose Co. Horizontal Statements Model for Year 1 Balance Sheet Income Statement Statement of Assets Cash A. Rec. Mdse. Inv. + Liab. Stkholders' Equity A. Pay. C. Stk. +Ret. Ear. Rev. Exp. Net Inc. Cash Flows 20,000+ NA+ NA = NA +20,000+ NA NA NA= NA 20,000 FA 13,200+ 42,100