Powell Company began the Year 3 accounting period with $31,000 cash, $97,000 inventory, $50,000 common stock, and $78,000 retained earnings. During Year 3, Powell experienced the following events: 1. Sold merchandise costing $63,500 for $110,500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $1,000 cash. 3. Received returned goods from Prentise. The goods cost Powell $5,100 and were sold to Prentise for $8,000. 4. Granted Prentise a $3,000 allowance for damaged goods that Prentise agreed to keep. 5. Collected partial payment of $91,500 cash from accounts receivable. Required a. Record the events in a statements model shown below. b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods? POWELL COMPANY Financial Statements Model for Year 3 Stockholders' Equity Assets Income Statement Event Statement of Cash No. Accounts Common Retained Net Cash Receivable + Inventory Revenue - Stock Expenses= Flows Earnings Income Bal 31,000+ 97,000 = 50,000+ 78,000 1a. 110,500+ 110,500 110,500 = II 110,500 10 1b. (63,500)= + (63,500) 63500 = (63,500) 2. (1,000) + (1,000) 1,000 = (1,000) (1,000) OA 3a (8,000) + + (8,000) (8,000) II (8,000) 3b. 5,100 = + 5,100 (5,100) = 5,100 4. (3,000) + + (3,000) (3,000) (3,000) 5. 91,500+ (91,500) + II + 91,500 OA Total 121,500 8,000 + 38,600 50,000+ 118,100 99,500 59,400 = 40,100 90,500 POWELL COMPANY Income Statement For the Year Ended December 31, Year 3 Net sales Cost of goods sold Gross margin Operating expenses Transportation-out Net income $ EA 0 0 Assets Cash Accounts receivable Total assets Liabilities Stockholders' equity POWELL COMPANY Balance Sheet As of December 31, Year 3 Total stockholders' equity Total liabilities and stockholders' equity $ 0 $ SA 0 0 POWELL COMPANY Statement of Cash Flows For the Year Ended December 31, Year 3 Cash flow from operating activities Net cash flow from operating activities Cash flows from investing activities: Cash flows from financing activities: Net change in cash Ending cash balance $ 0 EA $ 0 0 Get goods at reduced cost Can resell the damaged goods. Repair the damaged goods. Retain the damaged goods