Question

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At the beginning of Year 2, the Redd Company had the following balances in its accounts:

Cash	$	16,800
Inventory		4,000
Land		2,000
Common stock		12,000
Retained earnings		10,800

During Year 2, the company experienced the following events:

1. Purchased inventory that cost $11,200 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $800 were paid in cash.
2. Returned $600 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 $8,000 for $13,500 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $1,200 and was sold to the customer for $2,100 cash. The customer was paid $2,100 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $800 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Sold the land for $3,500.
9. Recognized accrued interest income of $500.
10. Took a physical count indicating that $6,500 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.)

Post the beginning balances and the events to the T-accounts

Answer 1

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Cash

Inventory

Common Stock

Debit

Credit

Debit

Credit

Debit

Credit

Beginning Balance

$ 16,800

a

$        800

Beginning Balance

$    4,000

b

$        600

Beginning Balance

$ 12,000

g

$ 13,230

c

$ 10,388

a

$ 11,200

c

$        212

h

$    3,500

e

$    2,100

a

$        800

d

$    8,000

Ending Balance

$ 12,000

f

$        800

e

$    1,200

Cost of Goods Sold

$    1,888

Retained Earning

Ending Balance

$ 19,442

Ending Balance

$    6,500

Debit

Credit

Beginning Balance

$ 10,800

Accounts Payable

Debit

Credit

Ending Balance

$ 10,800

b

$        600

a

$ 11,200

Sales Revenue

c

$ 10,600

Debit

Credit

d

$ 13,500

Ending Balance

$           -

Land

Ending Balance

$ 13,500

Debit

Credit

Beginning Balance

$    2,000

h

$    2,000

Freight Expense

Debit

Credit

Ending Balance

$           -

f

$        800

Cost of Goods Sold

Debit

Credit

Accounts Receivable

Ending Balance

$        800

d

$    8,000

e

$    1,200

Debit

Credit

Inventory

$    1,888

d

$ 13,500

g

$ 13,500

Sales Discount

Debit

Credit

Ending Balance

$    8,688

Ending Balance

$           -

g

$        270

Sales Return and Allowance

Ending Balance

$        270

Debit

Credit

Gain on Sale of Land

e

$    2,100

Debit

Credit

h

$    1,500

Ending Balance

$    2,100

Interest Income

Debit

Credit

i

$        500

Ending Balance

$        500

Interest Receivable

Debit

Credit

i

$        500

Ending Balance

$        500