Powell Company began the 2018 accounting period with $33,000 cash, $71,000 inventory, $52,000 common stock, and $52,000 retained earnings. During 2018, Powell experienced the following events:

Sold merchandise costing $45,500 for $96,000 on account to Prentise Furniture Store.

Delivered the goods to Prentise under terms FOB destination. Freight costs were $1,200 cash.

Received returned goods from Prentise. The goods cost Powell $5,300 and were sold to Prentise for $4,700.

Granted Prentise a $2,300 allowance for damaged goods that Prentise agreed to keep.

Collected partial payment of $76,000 cash from accounts receivable.

Required

Record the events in a statements model shown below.

Prepare an income statement, a balance sheet, and a statement of cash flows.

Why would Prentise agree to keep the damaged goods?

POWELL COMPANY Financial statements Model for 2018 Event No. can Retained Assets = Stockholders' Equity Income Statement Statement of Cash Accounts Common Flows + Inventory = Revenue - Expenses = Receivable Stock Earnings Income 33,000+ + 71,000 = 52,000 + 52,000 - O + + = + -N -N O Bal 1a. Total POWELL COMPANY Financial statements Model for 2018 Event No. can Retained Assets = Stockholders' Equity Income Statement Statement of Cash Accounts Common Flows + Inventory = Revenue - Expenses = Receivable Stock Earnings Income 33,000+ + 71,000 = 52,000 + 52,000 - O + + = + -N -N O Bal 1a. Total