Comprehensive Cycle Problem Perpetual Systemat The Beginning

Comprehensive Cycle Problem Perpetual Systemat The Beginning Of 201

Comprehensive cycle problem: Perpetual system at the beginning of 2011, the Jeater Company had the following balances in its accounts: Cash $4,300, Inventory $9,000, Common Stock $10,000, Retained Earnings $3,300. During 2011, the company experienced events including purchasing inventory, returning damaged goods, paying accounts payable, selling inventory, receiving returned merchandise, delivering goods FOB destination, collecting accounts receivable, and performing a physical inventory count. The task involves identifying these events as asset source (AS), asset use (AU), asset exchange (AE), or claims exchange (CE), recording each event in a statement model, and preparing financial statements: income statement, statement of retained earnings, balance sheet, and statement of cash flows.

Paper For Above instruction

The comprehensive cycle problem for Jeater Company in 2011 presents a complex series of accounting events that require detailed analysis and recording. To accurately reflect these activities, it is essential to understand the classification of each event, correctly journalize transactions, and prepare the main financial statements to present an accurate picture of the company's financial position and performance.

Identification of Events as Asset Source, Asset Use, Asset Exchange, or Claims Exchange

1. Purchasing inventory on account from Blue Company: This transaction increases inventory (asset) and accounts payable (liability), classifying it as an asset exchange (AE) because it involves an exchange of assets without immediate increase or decrease in assets or claims.

2. Returning damaged inventory: Returning inventory reduces inventory (asset) and accounts payable (liability). Since inventory decreases and liabilities decrease, this is an asset exchange (AE).

3. Payment of accounts payable within the discount period: Paying off an account payable reduces cash and accounts payable; this is an asset exchange (AE), reflecting the transfer of cash to settle liabilities.

4. Selling inventory on account: Selling inventory generates receivables and increases cash or accounts receivable while reducing inventory. Recognized as an asset exchange (AE), affecting both assets, and it also impacts revenue and net income, which will be reflected in the income statement.

5. Receiving merchandise returned from a customer: The return of merchandise reduces accounts receivable and inventory (asset), classified as an asset exchange (AE). The subsequent cash received from the customer is also an asset exchange.

6. Delivering goods FOB destination with freight costs paid: Delivery of goods reduces inventory (asset); freight costs paid are expenses, contributing to the expense recognition but are not classified as asset exchanges but as expenses. The freight costs are asset uses (AU) due to consumption related to delivery.

7. Collection of accounts receivable within discount period: Collection increases cash and decreases accounts receivable, a typical asset exchange (AE).

8. Physical inventory count indicating $7,970 on hand: This is an informational event; adjusting inventory to the Physical count involves recognizing an inventory write-down or adjustment, affecting assets (inventory), classified as an asset exchange (AE).

Recording Each Event in a Statement Model

Each transaction is recorded as a journal entry, affecting specific accounts:

1. Purchase Inventory:

- Dr Inventory $2,200

- Cr Accounts Payable $2,200

2. Return Damaged Inventory:

- Dr Accounts Payable $200

- Cr Inventory $200

3. Pay Accounts Payable within Discount:

- Dr Accounts Payable $2,000 (assuming full amount after return)

- Cr Cash $1,980 ($2,000 less 1% discount)

- Cr Inventory (if FIFO or specific identification reduces inventory value accordingly)

Since item specifics are not detailed, assume the discount applies to total payable.

4. Sale of Inventory:

- Dr Accounts Receivable $5,500

- Cr Sales Revenue $5,500

- Dr Cost of Goods Sold $3,000

- Cr Inventory $3,000

5. Return Merchandise from Customer:

- Dr Sales Returns and Allowances $710

- Cr Accounts Receivable $710

- Dr Inventory $400

- Cr Cost of Goods Sold $400

- Cash received from customer:

- Dr Cash $710

- Cr Accounts Receivable $710

6. Freight Costs for Delivery (FOB destination):

- Dr Freight Expense $60

- Cr Cash $60

7. Collection of Accounts Receivable within Discount:

- Dr Cash $5,390 (assuming 2% discount, so $5,500 less 2%)

- Cr Accounts Receivable $5,500

- Dr Accounts Receivable $110 (discount amount)

- Cr Cash $110

8. Inventory Adjustment after Physical Count:

- Adjust inventory to match physical count of $7,970, recording an adjustment if necessary.

Preparing Financial Statements

Income Statement:

- Sales Revenue: $5,500

- Less: Sales Returns ($710)

- Net Sales: $4,790

- Cost of Goods Sold: $3,000 (initial) minus inventory adjustment

- Gross Profit: Net Sales minus Cost of Goods Sold

- Operating Expenses: Freight Expense $60, plus other operating expenses

- Income from Operations: Gross profit minus operating expenses

- Other Income and Expenses: Financial charges or gains if applicable

- Net Income: Final bottom line based on above calculations

Statement of Retained Earnings:

- Beginning Retained Earnings: $3,300

- Add: Net Income for 2011

- Less: Dividends paid (none specified)

- Ending Retained Earnings: Calculated sum

Balance Sheet:

- Assets:

- Cash: Beginning + collection of receivables - payments - freight

- Accounts Receivable: beginning + sales - collections - returns

- Inventory: physical count at year-end ($7,970)

- Other assets as appropriate

- Liabilities:

- Accounts payable: beginning + purchases - returns - payments

- Stockholders’ Equity:

- Common Stock: $10,000

- Retained Earnings: calculated ending balance

Statement of Cash Flows:

- Operating Activities:

- Collections from customers

- Payments to suppliers

- Freight expenses

- Other operating cash flows

- Investing Activities:

- Purchases of inventory

- Returns

- Financing Activities:

- Issuance of stock or debt, if any. (Not specified here.)

Conclusion

These transactions depict a typical operating cycle involving purchases, sales, returns, and cash flows. Accurate classification and recording are vital; asset exchange entries dominate the journal entries, while expenses and revenues affect profit calculations. Proper preparation of financial statements paints a comprehensive view of Jeater Company's financial health at fiscal year-end, essential for management decision-making, investor insight, and regulatory compliance.

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