Problem 3-26A (Algo) Comprehensive cycle problem: Perpetual system LO 3-2, 3-3, 3-4, 3-5, 3-6, 3-7 [The following information applies to the questions displayed below.] At the beginning of Year 2, the Redd Company had the following balances in its accounts: Cash Inventory $8,700 2,700 Common stock 8,200 Retained earnings 3,200 During Year 2, the company experienced the following events: 1. Purchased inventory that cost $6,200 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $570 were paid in cash. 2. Returned $300 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 Ross Company within the cash discount period. 4. Sold inventory that had cost $6,700 for $9,700 on account, under terms 2/10, n/45. 5. Received merchandise returned from a customer. The merchandise originally cost $570 and was sold to the customer for $870 cash. The customer was paid $870 cash for the returned merchandise. 6. Delivered goods FOB destination in Event 4. Freight costs of $670 were paid in cash. 7. Collected the amount due on the account receivable within the discount perfod. 8. Took a physical count indicating that $2,400 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). Event 1a. (Purchase inventory). 1b. (Shipping cost). 2. 3. 4a. (Recording revenue). 4b. (Recording cost of goods sold). 5a. (Reversing revenue). 5b. (Reversing cost of goods sold). 6. 7. 8 Classification b. Record each event in a statements model like the following one. In the Cash Flow column, use OA to designate operating activity, IA for investment activity, FA for financing activity, or NC for net change in cash. If the element is not affected by the event, leave the cell blank. The first event is recorded as an example. (Not every cell will require entry. Enter any decreases to account balances and cash outflows with a minus sign.) REDD COMPANY Horizontal Statements Model Year 2 Balance Sheet Income Statement Event Assets Liabilities + Accounts Cash Receivable: Bal 8,700 Merchandise Inventory 2,700 Accounts Payable Common Stock Stockholders' Equity Retained Earnings Statement of Revenue Expenses Net Income Cash Flows + 8,200+ 3,200 1a 1b. 2. 3. 4a. 4b. 50 5b. 6. 7 Req C1 Req C2 Req C3 Req C4 Prepare a multistep income statement. REDD COMPANY Income Statement For the Year Ended December 31, Year 2 Operating expenses Reg C1 Req C1 Req C2 Req C3 Req C4 Prepare a statement of changes in stockholders' equity. REDD COMPANY Statement of Changes in Stockholders' Equity For the Year Ended December 31, Year 2 Beginning common stock Ending common stock Beginning retained earnings $ 0 Ending retained earnings 0 Total stockholders' equity $ 0 Req C1 Req C2 Req C3 Req C4 Prepare a balance sheet. Assets REDD COMPANY Balance Sheet As of December 31, Year 2 Total assets Liabilities Stockholders' Equity Total stockholders' equity Total liabilities and stockholders' equity $ $ 0 $ 0 Req C1 Req C2 Req C3 Req C4 Prepare a statement of cash flows. (Cash outflows should be indicated with a m REDD COMPANY Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flows from operating activities Net cash flow from operating activities Cash flows from investing activities: Cash flows from financing activities: Net change in cash Ending cash balance $ 0 69 SA $ 0 0