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.

c-1. Prepare a multistep income statement.

	REDD COMPANY Income Statement For the Year Ended December 31, 2018 Operating expenses

c-2. Prepare a statement of changes in stockholders’ equity.

	REDD COMPANY Statement of Changes in Stockholders’ Equity For the Year Ended December 31, 2018 Beginning common stock Ending common stock Beginning retained earnings Ending retained earnings Total stockholders’ equity

c-3. Prepare a balance sheet.

	REDD COMPANY Balance Sheet As of December 31, 2018 Assets Total assets Liabilities Stockholders’ Equity Total stockholders’ equity Total liabilities and stockholders’ equity

Prepare a statement of cash flows. (Enter cash outflows as negative amounts.)

	REDD COMPANY Statement of Cash Flows For the Year Ended December 31, 2018 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

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c1 Multistep Income Statement:
Sales Revenue			$    9,300
Less:
Sales Returna and allowance		$        830
Sales Discount		$        186	$   -1,016
Net Sales Revenue			$    8,284
Less: Cost of Goods Sold			$   -6,320
Gross Margin			$    1,964
Less: Freight Expense			$      -630
Net Income			$    1,334
c2 Statement of change in equity:
Common Stock			$    7,800
Beginning Retained Earning		$    2,800
Add: Net Income		$    1,334
Ending Retained Earning			$    4,134
Ending Stockholder's Equity			$ 11,934
c3 Balance Sheet:
Assets:
Cash			$ 10,034
Accounts Receivable			$           -
Inventory			$    1,900
Total Assets			$ 11,934
Liabilities:
Accounts Payable			$           -
Total Liabilities			$           -
Equity:
Common Stock		$    7,800
Retained earning		$    4,134
Total Stockholder's Equity			$ 11,934
Total Liabilities and Equity			$ 11,934
c4 Statement of Cash Flow
Cash flows from operating activities:
Received from Accounts Receivable			$    9,114
Payment of Inventory			$   -5,390
Payment of Freight outward			$      -530
Payment of Freight inward			$      -630
Payment of Returned goods			$      -830
Net cash flow from operating activities			$    1,734
Cash flows from investing activities			$           -
Cash flows from financing activities			$           -
Net change in cash			$    1,734
Add: Beginning Balance			$    8,300
Ending cash balance			$ 10,034