Problem 3-26A (Algo) Comprehensive cycle problem: Perpetual system LO 3-2, 3-3, 3-4, 3- 5, 3-6, 3-7 [The following information applies to the questions displayed below.) At the beginning of Year 2, the Redd Company had the following balances in its accounts: Cash Inventory Common stock Retained earnings $8,300 2,300 7,800 2,800 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,800 on account from Ross Company under terms 2/0,6/30. The merchandise was delivered FOB shipping point. Freight costs of $530 were paid in cash. 2. Returned $300 of the inventory that it had purchased because the inventory was damaged in transit. The seller agreed to pay the return freight cost. 3. Paid the amount due on its account payable to Ross Company within the cash discount period. 4. Sold inventory that had cost $6,300 for $9,300 on account, under terms 2/10, 1/45. 5. Received merchandise returned from a customer. The merchandise originally cost $530 and was sold to the customer for $830 cash. The customer was paid $830 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $630 were paid in cash 7. Collected the amount due on the account receivable within the discount period. 8. Took a physical count indicating that $2,000 of inventory was on hand at the end of the accounting period. Problem 3-26A (Algo) Part a Required a. Identify these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Classification N Event 1a. (Purchase inventory). 16. (Shipping cost). 2. 3. 4a. (Recording revenue). 4b. (Recording cost of goods sold). 5a. (Reversing revenue). 5b. (Reversing cost of goods sold). 6. 7. 8 Problem 3-26A (Algo) Part b b. Record each event in a statements model like the following one. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank. The first event is recorded as an example. (Not every cell will require entry. Enter any decreases to account balances and cash outflows with a minus sign.) REDD COMPANY Horizontal Statements Model Year 2 Balance Sheet Income Statement Liabilities Stockholders' Equity Not Merchandise Account Common Revenue Retained Expenses Income Inventory Payable Stock Earnings 2,300 + 7.800 2.800 Event Assets Account Recevable Statement Flow Cash Bal 8,300 + Ta - 1b. 2 3 +++ 4a 4b. Event Assets Accounts Recevable REDD COMPANY Horizontal Statements Model - Year 2 Balance Sheet Income Statement - Liabilities - Stockholders' Equity Net Merchandise Accounts Common Retained Revenue Expenses Income Inventory Payable Stock Earnings 2,300 7,800+ 2,800 Cash Statement Flow Bal. 8,300 ta 1b. 2 3. 4a 4b. 5a. 5b. 6. 7 ++ + 8 Bal $ 8,300+ $ 0+ $ 2,300 $ 0+ $ 7,800 + $ 2,800 $ 0 $ OH $ 0$ Assets ounts elvable REDD COMPANY Horizontal Statements Model - Year 2 Balance Sheet Income Statement = Llabilities + Stockholders' Equity Merchandise Net Accounts Common Retained Revenue Expenses Income Inventory Payable Stock Earnings 2,300 = 7,800 + 2,800 Statement of Cash Flows + + 1 11 + + + + II II + + 11 + + + + + + + + H11111 111 + ++ 0 $ Ole $ $ - 0 0 $ 0 + $ 2,300 = $ $ 2,800 $ $ 7,800 + 0 +