At the beginning of 2016, the Redd Company had the following balances in its acc

Question

At the beginning of 2016, the Redd Company had the following balances in its accounts: Cash Inventory Land Common stock Retained earnings $6,900 15,000 7,000 15,000 13,900 During 2016, the company experienced the following events: 1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $190 were paid in cash. 2. Returned $400 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 $6,800 for $12,100 on account, under terms 2/10, n/45 5. Recelved merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1,680 cash. The customer was paid $1,680 cash for the returned merchandise 6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. 7. Collected the amount due on the account receivable within the discount period. 8. Sold the land for $8,500. 9. Recognized accrued interest income of $600 10. Took a physical count indicating that $13,400 of inventory was on hand at the end of the accounting period.

Explanation / Answer

1. Interest Receivable A/c dr 600

        To Interest Income             600

(To accrue interest income)

2. Loss on inventory valuation   Dr 500*

       To Inventory                                    500

(To record Inventory loss)

* Workings:

Beginning Inventory            15,000 + Purchases               5,200 - Returns                (400) -Sales            (6,800) +sales returns                  900 Net            13,900 Physical count            13,400 Loss                  500

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