L/H Chapter 3
Endowment with Extended Term
Endowment with a Payor Benefit
Whole Life policy with an Other Insured Rider
Family Income Policy
At the beginning of 2016, the Redd Company had the following balances in its accounts:
CashInventoryLandCommon stockRetained earnings$6,90015,0007,00015,00013,900
During 2016, the company experienced the following events:
1. Purchased inventory that cost $5,200 on account from Ross Company under terms 1/10, n/30. The merchandise was delivered FOB shipping point. Freight costs of$190 were paid in cash.
2. Returned $400 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$6,800 for $12,100 on account, under terms 2/10, n/45.
5. Received merchandise returned from a customer. The merchandise originally cost$900 and was sold to the customer for $1,680 cash. The customer was paid$1,680 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. Sold the land for$8,500.
9. Recognized accrued interest income of $600.
10. Took a physical count indicating that$13,400 of inventory was on hand at the end of the accounting period.
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, 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.