Powell Company began the Year 3 accounting period with $48,000 cash, $94,000 inventory, $68,000 common stock,...

Powell Company began the Year 3 accounting period with $48,000 cash, $94,000 inventory, $68,000 common stock, and $74,000 retained earnings. During Year 3, Powell experienced the following events:

Sold merchandise costing $62,000 for $107,500 on account to Prentise Furniture Store.

Delivered the goods to Prentise under terms FOB destination. Transportation costs were $900 cash. Received returned goods from Prentise.

The goods cost Powell $4,800 and were sold to Prentise for $6,400.

Granted Prentise a $3,800 allowance for damaged goods that Prentise agreed to keep.

Collected partial payment of $88,500 cash from accounts receivable.

Required a. Record the events in a horizontal financial statements model.

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

Expert Solution

a

POWELL COMPANY
Financial Statements Model for Year 3
Event	Assets	=	Stockholders Equity Equity	Income Statement			Statement of Cas h dlows
	Cash	+	Accounts Receivable	+	Inventory	=	Common Stock	+	Retained Earnings	Revenue	-	Expenses	=	Net Income
Bal	48,000.00	+		+	94,000.00	=	68,000.00	+	74,000.00		-		=			NA
1a		+	107,500.00	+		=		+	107,500.00	107,500.00	-		=	107,500.00		NA
1b		+		+	- 62,000.00	=		+	- 62,000.00		-	62,000.00	=	- 62,000.00		NA
2	- 900.00	+		+		=		+	- 900.00		-	900.00	=	- 900.00	- 900.00	OA
3a		+	- 6,400.00	+		=		+	- 6,400.00	- 6,400.00	-		=	- 6,400.00		NA
3b		+		+	4,800.00	=		+	4,800.00		-	- 4,800.00	=	4,800.00		NA
4		+	- 3,800.00	+		=		+	- 3,800.00	- 3,800.00	-		=	- 3,800.00		NA
5	88,500.00	+	- 88,500.00	+		=		+			-		=		88,500.00	OA
Total	135,600.00	+	8,800.00	+	36,800.00	=	68,000.00	+	113,200.00	97,300.00	-	58,100.00	=	39,200.00	87,600.00	NC

b.

POWELL COMPANY
Income Statement
For the Year Ended December Year 3
Net Sales	97,300.00
Cost of Goods Sold	- 58,100.00
Gross Margin	39,200.00
Operating Expenses
Transportation Out	- 900.00
Net Income	38,300.00

POWELL COMPANY
Balance Sheet
As of December 31, Year 3
Assets
Cash	135,600.00
Accounts Receivable	8,800.00
Merchandise Inventory	36,800.00
Total Assets		181,200.00
Liabilities
Stockholders equity
Common Stock	68,000.00
Retained Earnings	113,200.00
Total Stockholders Equity		181,200.00
Total Liabilities and Stockholders Equity		181,200.00

POWELL COMPANY
Statement of cash Flows
For the Year Ended December 31 Year 3
Cash flows from Operating Activities
Cash inflows from Customers	88,500.00
Cash Outflow for expenses	- 900.00
Net cash flow from operating activities		87,600.00
Cash flows from investing activities
Cash flows from financing activities
Net change in cash		87,600.00
Plus: Beginning cash balance		48,000.00
Ending cash balance		135,600.00

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