At the beginning of 2016, the Redd Company had the following balances in its accounts:

At the beginning of 2016, the Redd Company had the following balances in its accounts:


     
  Cash     $22,800 
  Inventory     4,000 
  Land     2,900 
  Common stock     18,000 
  Retained earnings     11,700 


During 2016, the company experienced the following events:


1.     

Purchased inventory that cost $12,100 on account from Ross Company under terms 2/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of $890 were paid in cash.
2.     

Returned $900 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 $8,500 for $16,500 on account, under terms 2/10, n/45.
5.     

Received merchandise returned from a customer. The merchandise originally cost $1,650 and was sold to the customer for $2,000 cash. The customer was paid $2,000 cash for the returned merchandise.
6.      Delivered goods FOB destination in Event 4. Freight costs of $780 were paid in cash.
7.      Collected the amount due on the account receivable within the discount period.
8.      Sold the land for $5,300.
9.      Recognized accrued interest income of $700.
10.     

Took a physical count indicating that $3,500 of inventory was on hand at the end of the accounting period.



Required:
a.    Identify each of these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE). Also explain how each event would affect the financial statements by placing a + for increase, − for decrease, +/− for increase and decrease, or NA for not affected under each of the components in the following statements model. Assume that the perpetual inventory method is used. When an event has more than one part, use letters to distinguish the effects of each part. The first event is recorded as an example.



b.     Record the events in general journal format.
 


Explanation:

3a.
 Accounts payable [($12,100 – $900) × .02] = $224


3b.
Accounts payable ($12,100 – $900 – $224) = $10,976


7a.
 Accounts receivable ($16,500 × .02) = $330


7b. Accounts receivable ($16,500 – $330) = $16,170

c.    Post the beginning balances and the events to the T-accounts.






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





Explanation:
Inflow from customers = (7b) $16,170 – (5a) $2,000 = $14,170
Outflow for inventory = (1b) $890 + (3b) $10,976 = $11,866

e.    Record the closing entries. Post the entries to the T accounts (in part C). Prepare a post-closing trial balance.


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