Question

At the beginning of 2018, the Redd Company had the following balances in its accounts: Cash Inventory Common stock Retained earnings $ 8,000 2,000 7,500 2,500 During 2018, the company experienced the following events: . Purchased inventory that cost $5,500 on account from Redd Company under terms 2/10, n/30.

1.The merchandise was delivered FOB shipping point. Freight costs of $500 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 Redd Company within the cash discount period.
4. Sold inventory that had cost $6,000 for $9,000 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $500 and was sold to the customer for $800 cash. The customer was paid $800 cash for the returned merchandise.
6. Delivered goods FOB destination in Event 4. Freight costs of $600 were paid in cash.
7. Collected the amount due on the account receivable within the discount period.
8. Took a physical count indicating that $1,700 of inventory was on hand at the end of the accounting perioc

Answer 1

Answer:

Merchandise inventory   500 debit

         Cash                                500 credit

Accounts paaybles           350 debit

         Merchandise inventory       350 credit

Accounts payables     5150 debit

        Merchandise inventory  103 credit

        Cash                              5047 credit

Accounts Receivables 9000 debit

         Sales revenue            9000 credit

COGS              6000 debit

   Merchandise Inventory   6000 credit

Sales returns 800 debit

   Account receivables 800 credit

Merchandise inventory 500 debit

                 COGS                    500 credit

Fregith-out   600 debit

               Cash             600 credit

loss on possesion  753 debit

    merchandise inventory     753 credit

Explanation:

balance after the return:

5500 - 350 = 5150

discount 5150 x 2% = 103

cash disbursements: 5150 - 103 = 5047

balance after customer return:

9000 - 800 = 8200

discount 8200 x 2% = 164

cash proceeds 8036

Inventory accounting value:

beginning 2000

purchase  5500

fregiths       350

discount      103

sale         -6000

return         500

ending     2453

psysical count 1700

We recognize a loss for 753 dollars

Answer 2

The preparation of the financial statements for Redd Company per requirement is as follows:

Redd Company

Income Statement

For the year ended December 31, 2018

Sales Revenue         $9,000

Sales Returns               -800

Net Sales                 $8,200

Cost of goods sold   6,000

Gross profit             $2,200

Freight-out                 $600

Cash discounts           ($77)

($103 - $180)

Unrealized gain from

 Inventory valuation     50

($1,700 - $1,650)

Net income            $1,573

Redd Company

Statement of Retained Earnings:

At December 31, 2018

Beginning balance    $2,500

Net income                   1,573

Ending balance        $4,073

Redd Company

Balance Sheet

At December 31, 2018

Assets:

Cash                       $9,873

Inventory                  1,700

Total assets         $11,573

Common stock    $7,500

Retained earnings 4,073

Total equity       $11,573

Data and Transactions Analysis:

Beginning balances:

Cash  $ 8,000

Inventory 2,000

Common stock 7,500

Retained earnings    2,500

Transactions:

1. Inventory $5,500 Accounts Payable $5,500

terms 2/10, n/30

Freight-in $500 Cash $500

2. Accounts Payable $350 Inventory $350

3. Accounts Payable $5,150 Cash Discount $103 Cash $5,047

4. Accounts Receivable $9,000 Sales Revenue $9,000

terms 2/10, n/45.

Cost of goods sold $6,000 Inventory $6,000

5. Sales Returns $800 Cash $800

Inventory $500 Cost of goods sold $500

6. Freight-out $600 Cash $600

7. Cash $8,820 Cash Discounts $180 Accounts Receivable $9,000

8. Ending inventory $1,700

Cash  = $9,873 (8,000 - 500 - 5,047 - 800 - 600 + 8,820)

Ending inventory = $1,700

Common stock = $7,500

Cost of goods sold = $600 ($6,000 - $500 + $500)

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