Powell Company began the Year 3 accounting period with $49,000 cash, $95,000 inventory, $69,000 common stock, and $75,000 retained earnings. During Year 3, Powell experienced the following events: 1. Sold merchandise costing $62,500 for $108,500 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $800 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,900 and were sold to Prentise for $7,600. 4. Granted Prentise a $3,900 allowance for damaged goods that Prentise agreed to keep. 5. Collected partial payment of $89,500 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 Assets Income Statement Event No. Cash Accounts Receivable + Statement of Cash Flows Stockholders' Equity Common Retained + Stock Earnings 69,000 + 75,000 + Inventory = Revenue Net Income Expenses = Bal. 49,000 + + 95,000 1a. + + + 108,500 1b. + + (62,500) = + 2. + + + 3a. . + + 3b. + + ++++ 4. 5. + + + + + + Total 49,000 + 0 + 32,500 = 69,000 + 75,000 108,500 0 = 0 0 POWELL COMPANY Income Statement For the Year Ended December 31, Year 3 0 Gross margin Operating expenses Net income $ 0 POWELL COMPANY Balance Sheet As of December 31, Year 3 Assets Total assets $ 0 Liabilities Stockholders' equity 0 Total stockholders' equity Total liabilities and stockholders' equity $ 0 POWELL COMPANY Statement of Cash Flows For the Year Ended December 31, Year 3 Cash flow from operating activities $ 0 Net cash flow from operating activities Cash flows from investing activities: Cash flows from financing activities: Net change in cash 0 Ending cash balance $ 0 Why would Prentise agree to keep the damaged goods? (Select "Yes" if the item is a reason to agree, and "No" if it is not.) Get goods at reduced cost. Can resell the damaged goods. Repair the damaged goods. Retain the damaged goods