Required information the following information applies to the questions displayed below j at the beginning

General
1

required information the following information applies to the questions displayed below j at the beginning of year 2, the redd company had the following balances in its accounts cash inventory common stock retained earnings $8,800 2,888 8,300 3,3e0 during year 2. the company experienced the following events 1. purchased inventory that cost $6.300 on account from ross company under terms 2/10, n/30 the merchandise was delivered fob shipping point freight costs of $580 were paid in cash. 2 returned $400 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

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At the beginning of year 2, the Redd Company had the following balances in its accounts: Cash, Inventory, Common Stock, Retained Earnings, $8,800, $2,888, $8,300, and $3,380, respectively. During year 2, the company experienced the following events - 1) Purchased inventory costing $6,300 on account from Ross Company under terms 2/10, n/30 with merchandise delivered FOB shipping point and $580 freight costs paid in cash. 2) Returned $400 of the inventory purchased due to damage during transit, and the seller agreed to pay the return freight cost. 3) Paid the amount due on its account payable to Ross Company. How would these transactions be recorded?

Answer:
Let’s break down the transactions and understand how they will be recorded in the company’s accounts step by step.

Solution By Steps:

Initial Balances as of Beginning of Year 2:

  • Cash: $8,800
  • Inventory: $2,888
  • Common Stock: $8,300
  • Retained Earnings: $3,380

1. Purchase of Inventory on Account

Transaction:

  • Purchased inventory costing $6,300 on account from Ross Company.
  • The terms are 2/10, n/30, meaning a 2% discount if paid within 10 days, otherwise net amount due in 30 days.
  • The merchandise was shipped FOB (Free on Board) shipping point, meaning the buyer (Redd Company) pays the freight costs.
  • Freight cost of $580 was paid in cash.

Journal Entry:

  • Inventory (Debit) $6,300
  • Accounts Payable - Ross Company (Credit) $6,300
  • Freight-in (Debit) $580
  • Cash (Credit) $580

2. Return of Damaged Inventory

Transaction:

  • Returned $400 of the inventory due to damage during transit.
  • The seller (Ross Company) agreed to pay the return freight cost.

Journal Entry:

  • Accounts Payable - Ross Company (Debit) $400
  • Inventory (Credit) $400

3. Payment of Accounts Payable to Ross Company

Transaction:

  • Paid the amount due on the account payable to Ross Company within the discount period, earning the discount.

Calculation:

  • The initial payable amount was $6,300.
  • Returned items reduced the payable amount by $400, making the net payable $5,900.
  • Terms: 2/10, n/30. Hence, if paid within 10 days, we get a 2% discount.

Discount Calculation:

  • $5,900 * 2% = $118

Amount Paid:

  • $5,900 - $118 = $5,782

Journal Entry:

  • Accounts Payable - Ross Company (Debit) $5,900
  • Cash (Credit) $5,782
  • Inventory (Credit) $118 (reflecting the discount earned, reducing inventory cost)

Summary of Transactions:

Impacts:

  • Cash: Decreased by $580 (freight) + $5,782 (payment to Ross Company) = $6,362
  • Inventory: Initially increased by $6,300 - $400 (return) - $118 (discount) = Net increase of $5,782

Updated Balances:

  1. Cash:

    • Initial: $8,800
    • Less: $6,362 (total cash paid: freight + payable)
    • Ending: $2,438

  2. Inventory:

    • Initial: $2,888
    • Add: $5,782 (net inventory increase after return and discount)
    • Ending: $8,670

  3. Accounts Payable:

    • Initial: $0 (as given implicitly by the question)
    • Increase: $6,300 (initial purchase)
    • Decrease: $400 (return) and $5,900 (payment)
    • Ending: $0 (No accounts payable balance remaining)

Journal Entries Overview:

  1. Purchase of Inventory and Freight:

    • Inventory: $6,300
    • Accounts Payable: $6,300
    • Freight-In: $580
    • Cash: $580

  2. Return of Damaged Inventory:

    • Accounts Payable: $400
    • Inventory: $400

  3. Payment of Accounts Payable:

    • Accounts Payable: $5,900
    • Cash: $5,782
    • Inventory (Discount): $118

Final Answer:

The final cash balance is $2,438, and the final inventory balance is $8,670. There are no outstanding amounts payable to Ross Company.