Question

At the beginning of 2018, the Redd Company had the following balances in its accounts:

  

Cash	$	8,300
Inventory		2,300
Common stock		7,800
Retained earnings		2,800

  

During 2018, the company experienced the following events:

1. Purchased inventory that cost $5,800 on account from Redd Company under terms 2/10, n/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 Redd Company within the cash discount period.

4. Sold inventory that had cost $6,300 for $9,300 on account, under terms 2/10, n/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.
   
   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 - 2018 Event Balance Sheet Income Statement Statement of Cash Flows Assets = Liabilities + Stockholders’ Equity Revenue – Expenses = Net Income Cash + Accounts Receivable + Merchandise Inventory = Accounts Payable + Common Stock + Retained Earnings Bal. 8,300 + + 2,300 = + 7,800 + 2,800 – = 1a. + + = + + – = 1b. + + = + + – = 2. + + = + + – = 3. + + = + + – = 4a. + + = + + – = 4b. + + = + + – = 5a. + + = + + – = 5b. + + = + + – = 6. + + = + + – = 7. + + = + + – = 8. + + = + + – = Bal. + + = + + – =

Answer 1

	Cash	Accounts Receivable	Inventory	Accounts Payable	Common Stock	Retained Earnings	Revenue	Expenses	Net Income	Statement of Cash Flows
Balance	$             8,300		$             2,300		$           7,800	$          2,800
1a.			$             5,800	$      5,800							NC
1b.	$               -530		$                530							$          -530	OA
2			$              -300	$        -300							NC
3	$           -5,390		$              -110	$    -5,500						$      -5,390	OA
4a.		$             9,300				$          9,300	$      9,300		$            9,300		NC
4b.			$           -6,300			$        -6,300		$      6,300	$          -6,300		NC
5a.			$                530			$             530		$        -530	$               530		NC
5b.	$               -830					$           -830	$        -830		$              -830	$          -830	OA
6	$               -630					$           -630		$          630	$              -630	$          -630	OA
7	$             9,114	$           -9,300				$           -186	$        -186		$              -186	$        9,114	OA
8			$              -450			$           -450		$          450	$              -450		NC
Balance	$           10,034	$                   -	$             2,000	$            -	$           7,800	$          4,234	$      8,284	$      6,850	$            1,434	$        1,734