Question

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

Cash	$	7,900
Inventory		1,900
Common stock		7,400
Retained earnings		2,400

During Year 2, the company experienced the following events:

1. Purchased inventory that cost $5,400 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $490 were paid in cash.
2. Returned $450 of the inventory 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 Ross Company within the cash discount period.
4. Sold inventory that had cost $5,900 for $8,900 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $490 and was sold to the customer for $790 cash. The customer was paid $790 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $590 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Took a physical count indicating that $1,600 of inventory was on hand at the end of the accounting period.

b. 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, and NC for net change in cash. The first event is recorded as an example. (Enter any decreases to account balances and cash outflows with a minus sign. Not all cells in the "Statement of Cash Flows" column may require an input - leave cells blank if there is no corresponding input needed.)

REDD COMPANY Horizontal Statements Model - Year 2 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. 7,900 + + 1,900 = + 7,400 + 2,400 – = 1a. + + = + + – = 1b. + + = + + – = 2. + + = + + – = 3. + + = + + – = 4a. + + = + + – = 4b. + + = + + – = 5a. + + = + + – = 5b. + + = + + – = 6. + + = + + – = 7. + + = + + – = 8. + + = + + – = Bal. + + = + + – =

c-1. Prepare a multistep income statement.
c-2. Prepare a statement of changes in stockholders’ equity.
c-3. Prepare a balance sheet.
c-4. Prepare a statement of cash flows.

	REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flows from operating activities    Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash Ending cash balance

Answer 1