Question

Powell Company began the 2018 accounting period with $40,000 cash, $86,000 inventory, $60,000 common stock, and $66,000 retained earnings. During 2018, Powell experienced the following events:

1.Sold merchandise costing $58,000 for $99,500 on account to Prentise Furniture Store.

2.Delivered the goods to Prentise under terms FOB destination. Freight costs were $900 cash.

3.Received returned goods from Prentise. The goods cost Powell $4,000 and were sold to Prentise for $5,900.

4.Granted Prentise a $3,000 allowance for damaged goods that Prentise agreed to keep.

5.Collected partial payment of $81,000 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?

(Enter any decreases to account balances and cash outflows with a minus sign. In the Cash Flow column, use the initials OA to designate operating activity, IA for investing activity, FA for financing activity, and NA for no affect.)

	POWELL COMPANY Financial Statements Model for 2018 Event No. Assets = Stockholders’ Equity Income Statement Statement of Cash Flows Cash + Accounts Receivable + Inventory = Common Stock + Retained Earnings Revenue – Expenses = Net Income Bal. + + = + – = 1a. + + = + – = 1b. + + = + – = 2. + + = + – = 3a. 3b. 4. + + = + – = 5. + + = + – = Total + + = + – =

Prepare an income statement for Powell Company.

	POWELL COMPANY Income Statement For the Year Ended December 31, 2018

Prepare a balance sheet for Powell Company.

	POWELL COMPANY Balance Sheet As of December 31, 2018 Assets Cash Accounts receivable Merchandise inventory 32,000 Total assets $32,000 Liabilities Stockholders’ equity Common stock $60,000 Retained earnings Total stockholders' equity 60,000 Total liabilities and stockholders' equity $60,000

Prepare a statement of cash flows for Powell Company. (Amounts to be deducted should be indicated with minus sign.)

POWELL COMPANY Statement of Cash Flows For the Year Ended December 31, 2018 Cash flow from operating activities Net cash flow from operating activities $0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 not attempted Ending cash balance $0 Why would Prentise agree to keep the damaged goods? (Select which of the following statements (is) are true by selecting an "X".) Get goods at reduced cost. Can resell the damaged goods. Repair the damaged goods. Retain the damaged goods.

Answer 1

POWELL COMPANY
Financial Statements Model for 2018
Event No.	Assets					=	Stockholders’ Equity			Income Statement					Statement of Cash Flows
	Cash	+	Accounts Receivable	+	Inventory	=	Common Stock	+	Retained Earnings	Revenue	–	Expenses	=	Net Income
Bal.	40000	+		+	86000	=	60000	+	66000		–		=
1a.		+	99500	+		=		=	99500	99500	–	0	=	99500	NA
1b.					-58000				-58000			58000		-58000	Na
2	-900	+		+		=		+	-900		–	900	=	-900	OA
3a.			-5900						-5900	-5900				-5900	NA
3b.					4000				4000			-4000		4000	NA
4		+	-3000	+		=		+	-3000	-3000	–		=	-3000	NA
5	81000	+	-81000	+		=		+			–		=
Total	120100	0	9600		32000		60000		101700	90600		54900		35700

POWELL COMPANY
Income Statement
For the Year Ended December 31, 2018
Sales
Gross sales	99500
Less: Sales return & allowances	-8900
Net sales	90600
Less: Cost of good sold (58000-4000)	54000
Less: freight out	900
Net Incme	35700
Prepare a balance sheet for Powell Company.
POWELL COMPANY
Balance Sheet
As of December 31, 2018
Assets
Cash	120100
Accounts receivable	9600
Merchandise inventory	32000
Total assets		161700
Liabilities
Stockholders’ equity
Common stock	60000
Retained earnings	101700
Total stockholders' equity		161700
Total liabilities and stockholders' equity		161700
statement of cash flows for Powell Company.
POWELL COMPANY
Statement of Cash Flows
For the Year Ended December 31, 2018
Cash flow from operating activities
Cash received from cutomers	81000
Cash paid for frieght out	-900
Net cash flow from operating activities		80100
Cash flows from investing activities		0
Cash flows from financing activities		0
Net change in cash		80100
Beginnning balance		40000
Ending cash balance		120100
ans 4
Get goods at reduced cost.	TRUE
Can resell the damaged goods.	TRUE
If any doubt please comment