Question

CHEGG At the beginning of Year 2, the Redd Company had the following balances in its accounts: Cash $ 6,900 Inventory 15,000 Land 7,000 Common stock 15,000 Retained earnings 13,900 During Year 2, the company experienced the following events: 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. Returned $400 of the inventory it had purchased from Ross Company because the inventory was damaged in transit. The seller agreed to pay the return freight cost. Paid the amount due on its account payable to Ross Company within the cash discount period. Sold inventory that had cost $6,800 for $12,100 on account, under terms 2/10, n/45. 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 $1,680 cash for the returned merchandise. Delivered goods FOB destination in Event 4. Freight costs of $140 were paid in cash. Collected the amount due on the account receivable within the discount period. Sold the land for $8,500. Recognized accrued interest income of $600. Took a physical count indicating that $13,400 of inventory was on hand at the end of the accounting period. (Hint: Determine the current balance in the inventory account before calculating the amount of the inventory write down.

Answer 1

Answer:

a) I used an excel spreadsheet to record the T-accounts

the closing entries would be:

Dr Sales revenue 12,100

Dr Purchase discounts 48

Dr Interest revenue 600

Dr Gain on sale of land 1,500

    Cr Income summary 14,248

Dr Income summary 8,512

    Cr Cost of goods sold 6,450

    Cr Sales returns 1,680

    Cr Sales discounts 242

    Cr Distribution costs 140

Dr Income summary 5,736

    Cr Retained earnings 5,736

b) Redd Company

Income Statement

For the year ended December 31, Year 2

Revenues:

• Sales revenues $12,100
• Sales returns ($1,680)
• Sales discounts ($242)                         $10,178

Cost of goods sold                                       ($6,450)

Gross profit                                                     $3,728

Expenses:

• Distribution costs ($140)                          ($140)

Operating income                                          $3,588

Other sources of income:

• Gain on sale of land $1,500
• Interest revenue $600                          $2,100

Net income before taxes                               $5,688

Explanation: