! Required information Problem 4-26A Comprehensive cycle problem: Perpetual system LO 4-2, 4-3,4-4,4-5, 4-6, 4-7 [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 Land Common stock Retained earnings $ 6,900 15,000 7,000 15,000 13,900 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $190 were paid in cash. 2. Returned $400 of the inventory it had purchased from Ross Company 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 $6,800 for $12,100 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1,680 cash. The customer was paid $1,680 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $8,500. 9. Recognized accrued interest income of $600. 10. Took a physical count indicating that $13,400 of inventory was on hand at the end of the accounting period. (Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down.) Required: a. Identify each of these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event would affect the financial statements by placing a + for increase, - for decrease, +/- for increase and decrease, or NA for not affected under each of the components in the following statements model. Assume that the perpetual inventory method. When an event has more than one part, use letters to distinguish the effects of each part. The first event is recorded as an example. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NA for not affected.) Financial Statements Effect of Events on the Financial Statements for Year 2 Balance Sheet Income Statement Event No. Event Type Statement of Cash Flows Assets = Liabilities + Revenue Expenses Stk. Equity NA Net Income NA 1a. AS + + NA NA NA NA 1b. AE +/- NA NA NA NA NA OA 2. 3a. Disc. 3b. Pay. 4a. Sale 4b. Cost 5a. Ret Rev 5b. Ret Cost 6. Frt. 7a. Disc 7b. Coll. 8. Land 9. Int. 10. Adj. b. Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry inventory purchased on account from Ross company terms 1/10, n/30. Note: Enter debits before credits. Event General Journal Debit Credit 1a Record entry Clear entry View general journal c. Post the beginning balances and the events to the T-accounts. Note that these ledger accounts will also be used when posting the closing entry that is created in Part e. Cash Merchandise Inventory Beg. Bal Beg. Bal End. Bal End. Bal Bal Accounts Receivable Interest Receivable Beg. Bal Beg. Bal End. Bal End. Bal Land Accounts Payable Beg. Bal Beg. Bal Common Stock Retained Earnings Beg. Bal Beg. Bal End. Bal End. Bal Sales Revenue Cost of Goods Sold Beg. Bal Beg. Bal Bal Bal Transportation-out Interest Revenue Beg. Bal Beg. Bal Bal Bal Problem 4-26A Part d d. Prepare a multistep income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for year 2. (Statement of Cash Flows only, items to be deducted must be indicated with a minus sign.) REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses Nonoperating items REDD COMPANY REDD COMPANY Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Total stockholders' equity REDD COMPANY Balance Sheet As of December 31, Year 2 Assets Total assets Liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flow from operating activities Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Ending cash balance e. Use a single general journal to close all revenue, gain, and expense accounts to the retained earnings account. Post the journal entry to the ledger accounts created in Part c and prepare a post-closing trial balance. (If no entry is required for a transaction/event select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry to close all revenue, gain, and expense accounts to the retained earnings account. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31 Record entry Clear entry View general journal Record entry Clear entry View general journal REDD COMPANY Post Closing Trial Balance December 31, Year 2 Account Titles Debit Credit Total $ 0 $ 0 ! Required information Problem 4-26A Comprehensive cycle problem: Perpetual system LO 4-2, 4-3,4-4,4-5, 4-6, 4-7 [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 Land Common stock Retained earnings $ 6,900 15,000 7,000 15,000 13,900 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $190 were paid in cash. 2. Returned $400 of the inventory it had purchased from Ross Company 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 $6,800 for $12,100 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1,680 cash. The customer was paid $1,680 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $8,500. 9. Recognized accrued interest income of $600. 10. Took a physical count indicating that $13,400 of inventory was on hand at the end of the accounting period. (Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down.) Required: a. Identify each of these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event would affect the financial statements by placing a + for increase, - for decrease, +/- for increase and decrease, or NA for not affected under each of the components in the following statements model. Assume that the perpetual inventory method. When an event has more than one part, use letters to distinguish the effects of each part. The first event is recorded as an example. (In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NA for not affected.) Financial Statements Effect of Events on the Financial Statements for Year 2 Balance Sheet Income Statement Event No. Event Type Statement of Cash Flows Assets = Liabilities + Revenue Expenses Stk. Equity NA Net Income NA 1a. AS + + NA NA NA NA 1b. AE +/- NA NA NA NA NA OA 2. 3a. Disc. 3b. Pay. 4a. Sale 4b. Cost 5a. Ret Rev 5b. Ret Cost 6. Frt. 7a. Disc 7b. Coll. 8. Land 9. Int. 10. Adj. b. Record the events in general journal format. Assume that the perpetual inventory method and gross method is used. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry inventory purchased on account from Ross company terms 1/10, n/30. Note: Enter debits before credits. Event General Journal Debit Credit 1a Record entry Clear entry View general journal c. Post the beginning balances and the events to the T-accounts. Note that these ledger accounts will also be used when posting the closing entry that is created in Part e. Cash Merchandise Inventory Beg. Bal Beg. Bal End. Bal End. Bal Bal Accounts Receivable Interest Receivable Beg. Bal Beg. Bal End. Bal End. Bal Land Accounts Payable Beg. Bal Beg. Bal Common Stock Retained Earnings Beg. Bal Beg. Bal End. Bal End. Bal Sales Revenue Cost of Goods Sold Beg. Bal Beg. Bal Bal Bal Transportation-out Interest Revenue Beg. Bal Beg. Bal Bal Bal Problem 4-26A Part d d. Prepare a multistep income statement, a statement of changes in stockholders' equity, a balance sheet, and a statement of cash flows for year 2. (Statement of Cash Flows only, items to be deducted must be indicated with a minus sign.) REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses Nonoperating items REDD COMPANY REDD COMPANY Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Total stockholders' equity REDD COMPANY Balance Sheet As of December 31, Year 2 Assets Total assets Liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flow from operating activities Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Ending cash balance e. Use a single general journal to close all revenue, gain, and expense accounts to the retained earnings account. Post the journal entry to the ledger accounts created in Part c and prepare a post-closing trial balance. (If no entry is required for a transaction/event select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record entry to close all revenue, gain, and expense accounts to the retained earnings account. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31 Record entry Clear entry View general journal Record entry Clear entry View general journal REDD COMPANY Post Closing Trial Balance December 31, Year 2 Account Titles Debit Credit Total $ 0 $ 0