At the beginning of Year 2, the Redd Company had the following balances in its accounts:

Cash ..................................................................$16,900
Inventory ............................................................25,000
Common stock ..................................................30,000
Retained earnings .............................................11,900

During Year 2, the company experienced the following events:
1. Purchased inventory that cost $15,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $200 were paid in cash.
2. Returned $800 of the inventory 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 $18,000 for $32,000 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost $800 and was sold to the customer for $1,500 cash. The customer was paid $1,500 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. Took a physical count indicating that $21,100 of inventory was on hand at the end of the accounting period.

Required
a. Identify these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE).
b. Record each event in a horizontal financial statements model like the following one:

c. Prepare a multistep income statement, a statement of changes in stockholders’ equity, a balance sheet, and a statement of cash flows.

Transcribed Image Text:

Balance Sheet Statement of Cash Flows Income Statement + Stk. Equity Cash + Acct. Rec. + Mdse. Inv. = Acct. Pay. + Ret. Earn. Assets Llab. Event Rev. = Net Inc. Exp.