## Educational Resource: Financial Statement Model - Understanding Horizontal Statements### Explanation of Financial Transactions for Redd CompanyThis guide presents how to use a horizontal statements model to record various financial events. This model is applicable for understanding financial activities within Redd Company during Year 2.### Instruction:**Record each event in a statements model** similar to the following format. In the “Statement of Cash Flows” column, use:- **OA** for Operating Activity- **IA** for Investment Activity- **FA** for Financing Activity- **NC** for No net change in cash.Leave the cell blank if the element is unaffected by the event. The first event has been recorded as an example. **Note**: Not every cell will require entry. Enter any decreases to account balances and cash outflows with a minus sign.### Financial Statement Model:#### Balance Sheet- **Assets**: - Cash - Accounts Receivable - Merchandise Inventory- **Liabilities**: - Accounts Payable- **Stockholders’ Equity**: - Common Stock - Retained Earnings#### Income Statement- Revenue- Expenses- Net Income#### Statement of Cash Flows### Example Data (All amounts in USD):- **Balances**: - Cash: $7,500 - Merchandise Inventory: $1,500 - Common Stock: $7,000 - Retained Earnings: $2,000- **Events**: - Event 1a to 8 and their respective columns are left blank. These will be filled based on specific financial transactions as they occur.- **Balance Totals** at the end: - Cash: $7,500 - Accounts Receivable: $0 - Merchandise Inventory: $1,500 - Accounts Payable: $0 - Common Stock: $7,000 - Retained Earnings: $2,000 - Revenue, Expenses, Net Income, Statement of Cash Flows: All $0This model provides a structured approach for recording and analyzing financial events, ensuring comprehensive understanding and accountability in financial reporting. ### Financial Overview of Redd Company**Opening Balances at the Start of Year 2:**- **Cash:** $7,500 - **Inventory:** $1,500 - **Common Stock:** $7,000 - **Retained Earnings:** $2,000 ---### Events During Year 2:1. **Inventory Purchase:** - Acquired inventory costing $5,000 on account from Ross Company with payment terms of 2/10, n/30. - Merchandise was delivered FOB shipping point. - Paid freight costs amounting to $450 in cash.2. **Return of Damaged Inventory:** - Returned $350 of inventory due to damage in transit. - Seller agreed to cover the return freight cost.3. **Payment to Ross Company:** - Settled the amount due within the cash discount period.4. **Inventory Sale:** - Sold inventory costing $5,500 for $8,500 on account, with terms of 2/10, n/45.5. **Return from Customer:** - Merchandise originally costing $450 was returned by a customer, with an initial sale price of $750. - The customer was reimbursed $750 in cash.6. **Freight Payment for Event 4:** - Delivered goods FOB destination with freight costs of $550 paid in cash.7. **Collection of Receivables:** - Collected the amount due on account receivable within the discount period.8. **Inventory Count:** - A physical count at the end of the accounting period showed $1,200 of inventory on hand.--- This summary showcases Redd Company's financial activities and management decisions over the year, reflecting both its revenue-generating capabilities and operational expenditures.

Accounting equation:Assets = Liabilities + Stockholders' equityRules for EntriesPersonal Account: Related to Person or Firm.Receiver will be debited and giver will be credited in personal accounts.Real Account: Related to assets and goodsincoming to business will be debited and Outgoing from business will be credited in real accounts.Nominal Account: Related to Expenses or Losses and Income or Profits.Expenses or losses will be debited and income or profits will be credited in nominal accounts.Assets: have debit balance.assets increased will be debited and assets decreased will be credited.Liabilities: have credit balance. liabilities increased will be credited and liabilities decreased will be debited.

Business

Accounting

During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash. 2. Returned $350 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 Ross Company within the cash discount period. 4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer 150.656 merchandise

During Year 2, the company experienced the following events: 1. Purchased inventory that cost $5,000 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $450 were paid in cash. 2. Returned $350 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 Ross Company within the cash discount period. 4. Sold inventory that had cost $5,500 for $8,500 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $450 and was sold to the customer 150.656 merchandise

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

In its first year of operations, Dulany Company, a clothing store, purchased $18,000 of merchandisefrom a supplier on account, terms 2/10, n 30. Dulany Company returned $3,000 of defectivemerchandise, and then paid the amount due within the discount period. During the year, the companysold merchandise inventory costing $12,000 to its customers. What would be the balance in Dulany’sCompany’s Merchandise Inventory account at the end of the year?A. $2,700B. $3,200C. $3,300D. $2,640
HOW DO I PREPARE A TRANSACTION CHART? On June 10, Wildhorse Company purchased $9,500 of merchandise on account from Novak Company, FOB shipping point, terms 2/10, n/30. Wildhorse pays the freight costs of $590 on June 11. Damaged goods totaling $350 are returned to Novak for credit on June 12. The fair value of these goods is $75. On June 19, Wildhorse pays Novak Company in full, less the purchase discount. Both companies use a perpetual inventory system.
JC Manufacturing purchased inventory for $4,400 and also paid a $320 freight bill. JC Manufacturing returned 45% of the goods to the seller and later took a 1% purchase discount. Assume JC Manufacturing uses a perpetual inventory system. What is JC Manufacturing's final cost of the inventory that it kept? (Round your answer to the nearest whole number.) OA. $1,960 OB. $2,716 OC. $2,570 OD. $2,396
Rice Co. sold for $12,000 inventory that had cost $8,000. Freight terms for the sale were FOB destination and payment terms were 1/10, n/30. Rice records sales transactions at the gross amount. Rice paid freight costs of $400 in cash. The receivable was collected within the discount period. Based on this information alone, the amount of gross margin would be: a. $3,480 b. $3,880 c. $3,600 d. $4,000
Your company completed the following merchandise transactions during year 6: 1. On January 1, Year 6, your company had merchandise which cost $18,000 and had a net realizable value of $17,900. 2. Purchased $23,000 of merchandise for cash 3. Sold $19,000 of the merchandise for $36,400 on account. 4. Purchased $10,000 of merchandise on account, terms 2/10, n/30. 5. Paid for the merchandise in #3 on the eighth day after the purchase. 6. There were other purchases and sales throughout the year, but you do not need to record them, so no entry here. 7. Ended the year with merchandise which cost $26,000 (according to your calculations) and had a net realizable value of $25,400. INSTRUCTIONS: a. Prepare the entries for the transactions above assuming a Periodic inventory system, the allowance method for LCNRV, and the net method for purchase discounts. b. Prepare the entries for the transactions above assuming a Perpetual inventory system, the direct inventory reduction method for LCNRV, and…
Please answer the question correctly. Thank you.
Good Buy Company made total purchases of $270,000 in the most current year. It paid freight in of $1,000 on its purchases. Freight out, the cost to deliver the merchandise when it was sold to Good Buy's customers, totaled $7,200. Of the total purchases Good Buy made during the period, it returned $24,000 of the merchandise. Good Buy took advantage of $2,300 of purchase discounts offered by its vendors. What was Good Buy's cost of inventory?
Peterson Manufacturing purchased inventory for $5,900 and also paid a $330 freight bill. Peterson Manufacturing returned 40% of the goods to the seller and later took a 1% purchase discount. Assume Peterson Manufacturing uses a perpetual inventory system. What is Peterson Manufacturing's final cost of the inventory that it kept? (Round your answer to the nearest whole number.) OA. $3,505 OB. $3,835 OC. $3,701 OD. $2,336 RECOR