Cathys Catering experienced the following independent events: 1. Acquired cash from issuing common stock. 2. Purchased inventory

Cathy’s Catering experienced the following independent events:

1. Acquired cash from issuing common stock.

2. Purchased inventory on account.

3. Paid cash to purchase marketable securities classified as trading securities.

4. Recorded unrealized loss on marketable securities that were classified as trading securities.

5. Recorded unrealized loss on marketable securities that were classified as available-for-sale securities.

6. Recorded unrealized loss on marketable securities that were classified as held-to-maturity securities.

7. Wrote down inventory to comply with lower-of-cost-or-market rule. (Assume that the company uses the perpetual inventory system.)

8. Recognized cost of goods sold under FIFO.

9. Recognized cost of goods sold under the weighted-average method.

Required

a. Show the effect of each event on the elements of the financial statements using a horizontal statements model like the following one. Use 1 for increase, 2 for decrease, and NA for not affected. In the Cash Flow column, indicate whether the item is an operating activity (OA), investing activity (IA), or financing activity (FA). The first transaction is entered as an example.

b. Explain why there is or is not a difference in the way Events 8 and 9 affect the financial statementsmodel.

Transcribed Image Text:

Event Rev. or Exp. or No. Assets = Liab. + Equity Gain - Loss = Net Inc. Cash Flow NA NA NA NA + FA