Chapter 3, Problem 23P

Effect of purchase returns and allowances and purchase discounts on the financial statements: Perpetual system

The following events were completed by Dana’s Imports in September 2018:

Sept. 1 Acquired $50,000 cash from the issue of common stock.

1 Purchased $28,000 of merchandise on account with terms 2/10, n/30.

5 Paid $600 cash for freight to obtain merchandise purchased on September 1.

8 Sold merchandise that cost $15,000 to customers for $31,000 on account, with terms 2/10, n/30.

8 Returned $600 of defective merchandise from the September 1 purchase to the supplier.

10 Paid cash for the balance due on the merchandise purchased on September 1.

20 Received cash from customers of September 8 sale in settlement of the account balances, but not within the discount period.

30 Paid $2,450 cash for selling expenses.

Required

a. Record each event in a statements model like the following one. The first event is recorded as an example.

b. Prepare an income statement for the month ending September 30.

c. Prepare a statement of cash flows for the month ending September 30.

d. Explain why there is a difference between net income and cash flow from operating activities.