Question

The beginning account balances for Terry's Auto Shop as of January 1, Year 2, are as follows:

Account Titles Beginning Balances

Cash 6,170
Inventory3,040
Common Stock 7,370
Retained Earnings1,840

The following events affected the company during the Year 2 accounting period:

1. Purchased merchandise on account that cost 4,240. The goods were purchased FOB shipping point with transportation cost of255 cash.
2. Returned 445 of damaged merchandise.
3. Agreed to keep other damaged merchandise for which the company received a260 allowance.
4. Sold merchandise that cost 2,640 for4,920 cash.
5. Delivered merchandise to customers under terms FOB destination with transportation costs amounting to 135 cash.
6. Paid2,920 on the merchandise purchased in Event 1.

Exercise 4-12a (Algo) Part A

Required:

a. Organize appropriate accounts under an accounting equation. Record the beginning balances and the transaction data in the accounts. In the last column of the table, provide appropriate inputs for the retained earnings amounts. Note: Enter any decreases to account balances with a minus sign. Not all cells in the 'Accounts Titles for Retained Earnings' column may require an input - leave cells blank if there is no corresponding retained earnings input needed.

a) What are the beginning account balances for Terry's Auto Shop as of January 1, Year 2?

1. Cash: 6,170
2. Inventory:3,040
3. Common Stock: 7,370
4. Retained Earnings:1,840
1) Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840
2) Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840

Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840
3) Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840

Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840
4) Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840

Cash: $6,170
Inventory: $3,040
Common Stock: $7,370
Retained Earnings: $1,840

Answer 1

The beginning balances for Terry's Auto Shop consist of cash of $6,170, inventory of $3,040, common stock of $7,370, and retained earnings of $1,840. Changes in these accounts occur due to various events such as merchandise purchases, returns and allowances, sales, and payment of transportation costs.

Step-by-step explanation:

The beginning account balances for Terry's Auto Shop as of January 1, Year 2, are detailed as follows:

• Cash: $6,170
• Inventory: $3,040
• Common Stock: $7,370
• Retained Earnings: $1,840

When accounting for the various events during the year, certain changes to these accounts would occur. For example, purchasing merchandise on account increases inventory and decreases cash since transport costs are paid in cash. When merchandise is returned or an allowance received, inventory decreases and accounts payable change accordingly. Sales result in an increase in cash and a decrease in inventory, and there's also a cost related to transportation when terms are FOB destination.