Powell Company began the 2018 accounting period with $35,000 cash, $73,000 inven

Question

Powell Company began the 2018 accounting period with $35,000 cash, $73,000 inventory, $54,000 common stock, and $54,000 retained earnings. During 2018, Powell experienced the following events 1. Sold merchandise costing $46,500 for $98,000 on account to Prentise Furniture Store. 2. Delivered the goods to Prentise under terms FOB destination. Freight costs were $900 cash. 3. Received returned goods from Prentise. The goods cost Powell $4,500 and were sold to Prentise for $6,400 4. Granted Prentise a $2,500 allowance for damaged goods that Prentise agreed to keep 5. Collected partial payment of $78,000 cash from accounts receivable. Required a. Record the events in a statements model shown below. b. Prepare an income statement, a balance sheet, and a statement of cash flows. c. Why would Prentise agree to keep the damaged goods?

Explanation / Answer

Income statement Sales revenue 89100 Cost of goods sold 42000 Gross profit 47100 Operating expense Frieght expense 900 Net income 46200 Statement of cash flow Cash flow from operating activities Cash inflow from customer 78000 Cash outflow for expense -900 Cash flow from operating activities 77100 Cash flow from investing activities 0 Cash flow from financing activities 0 Net change in cash 77100 Beginning cash balance 35000 Ending cash balance 112100 Get the goods at reduced cost

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