Exercise $3-16$A $($Algo$)$ Effect of sales returns and allowances and freight costs on the financial

statements: Perpetual system LO $3-2,3-3,3-4,3-6,3-7$

Powell Company began the Year $3$ accounting period with $$48,000$ cash, $$94,000$ inventory, $$68,000$ common stock, and $$74,000$

retained earnings. During Year $3,$ Powell experienced the following events:

Sold merchandise costing $$62,000$ for $$107,500$ on account to Prentise Furniture Store,

Delivered the goods to Prentise under terms FOB destination. Freight costs were $$900$ cash.

Received returned goods from Prentise. The goods cost Powell $$4,800$ and were sold to Prentise for $$7,400.$

Granted Prentise a $$3,800$ allowance for damaged goods that Prentise agreed to keep.

Collected partial payment of $$88,500$ cash from accounts receivable.

Required:

a$.$ Use a horizontal financial statements model to show how each event affects the balance sheet, income statement, and statement of

cash flows. More specifically, record the amounts of the events into the model. Also, in the Statement of Cash Flows column, classify

the cash flows as operating activities $($OA$),$ investing activities $($IA$),$ or financing activities $($FA$).$

b$.$ Prepare an income statement, a balance sheet, and a statement of cash flows.

c$.$ Why would Prentise agree to keep the damaged goods?

Complete this question by entering your answers in the tabs below.

Req A

Req B$1$

Req B$3$

Req $C$

events into the model. Also, in the Statement of Cash Flows column, classify the cash flows as operating activities $($OA$),$ investing activities $($IA$),$ or financing activities $($FA$).$

Note: Enter any decreases to account balances and cash outflows with a minus sign. Leave cells blank if no input is needed.