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Exercise 4-12B Effect of punchase returns and allowances and transportation costs on the financial statements: perpetual system The beginning account balances for Franchoni's Body Shop
Exercise 4-12B Effect of punchase returns and allowances and transportation costs on the financial statements: perpetual system The beginning account balances for Franchoni's Body Shop as of January 1, Year 2, follow: The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $17,000. 2. The goods in Event 1 were purchased FOB shipping point with transportation cost of $1,200cash. 3. Returned $2,200 of damaged merchandise. 4. Agreed to keep other damaged merchandise for which the company received a $900 allowance. 5. Sold merchandise that cost $12,000 for $27,000 cash. 6. Delivered merchandise to customers in Event 5 under terms FOB destination with transportation costs amounting to $800 cash. 7. Paid $7,800 on the merchandise purchased in Event I. Required a. Organize appropriate accounts under an accounting equation. Record the beginning balances and the transaction data in the accounts. b. Prepare an income statement and a statement of cash flows for Year 2 , c. Explain why a difference does or does not exist between net income and net cash flow from operating activities. a. Franchoni's Body Shop Effect of Events on the Accounting Equation b. c. The difference between net income of $14,200 and cash flow from operating activities of $17,200 results because
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