problem 4-26A Comprehensive cycle problem: Perpetual system LO 4-2, At the begin
ID: 2427430 • Letter: P
Question
problem 4-26A Comprehensive cycle problem: Perpetual system LO 4-2,
At the beginning of 2016, the Redd Company had the following balances in Its accounts:
cash 6.900
Inventory 15,000
Land 7,000
Common Stock 15,000
Retaind Earnings 13,900
l . purchased inventory that cost $5,200 on account from Ross Company under terms 1/10. 11/30. The merchandise was delivered FOB shipping point. Freight costs of S]90 '*ere paid in cash.During 2016, the company experienced the following events:
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. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1 ,680 cash, The customer was paid Sl ,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.
used, When an event has more than one part, use letters to distinguish the etyeets of each part. The first event is recorded as an example
b. Record the events in general journal format.
c. Open ledger T-accounts, and post the beginning balances and the events to the accounts.
Prepare a multistep income statement, a statement of changes in stockholders' equity, a bal. ance sheet, and a statement of cash flows.
e. Record and post the closing entries, and prepare a post-closing trial balance.
Explanation / Answer
Answer:
1. purchased inventory that cost $5,200 on account from Ross Company under terms 1/10. 11/30. The merchandise was delivered FOB shipping point. Freight costs of $90 '*ere paid in cash.
Dr Merchandise Inventory 5,390
Cr Accounts Payable 5,200
Cr Cash 190
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.
Dr Accounts Payable 400
Cr Merchandise Inventory 400
3. Paid the amount due on its account payable to Ross Company within the cash discount period.
(5,200 - 400) x 1% = $48 discount
Dr Accounts Payable 4800
Cr Cash 4752
Cr Merchandise Inventory 48
4.Sold inventory that had cost $6,800 for $12, 100 on account, under terms 2/10, n/45.
Dr Accounts Receivable 12,100
Cr Sales 12,100
Dr Cost of Goods Sold 6,800
Cr Merchandise Inventory 6,800
5. Received merchandise returned from a customer. The merchandise originally cost $900 and was sold to the customer for $1 ,680 cash, The customer was paid Sl ,680 cash for the returned merchandise.
Dr Sales Returns and Allowances 1680
Cr Cash 1680
Dr Merchandise Inventory 900
Cr Cost of Goods Sold 900
6. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash.
Dr Freight-Out 140
Cr Cash 140
7. Collected the amount due on the account receivable within the discount period.
12100 x 2% = $242 Discount
Dr Cash 11858
Dr Sales Discounts 242
Cr Accounts Receivable 12100
8. Sold the land for $8,500.
Dr. Cash $8500
Cr. Land $8500
9. Recognized accrued interest income of $600.
Interest receivable A/C dr. $600
To interest A/C $600
10. $ Merchandise Inventory, Retained Earnings and Net Income.
$ in Expenses.
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