Chapter 3, Problem 9E

Effect of product cost and period cost: Horizontal statements model

The Pet Store experienced the following events for the 2018 accounting period:

1. Acquired $60,000 cash from the issue of common stock.

2. Purchased $65,000 of inventory on account.

3. Received goods purchased in Event 2 FOB shipping point; freight cost of $900 paid in cash.

4. Sold inventory on account that cost $38,000 for $71,000.

5. Freight cost on the goods sold in Event 4 was $620. The goods were shipped FOB destination. Cash was paid for the freight cost.

6. Customer in Event 4 returned $4,200 worth of goods that had a cost of $2,150.

7. Collected $58,300 cash from accounts receivable.

8. Paid $59,200 cash on accounts payable.

9. Paid $2,600 cash for advertising expense.

10. Paid $3,100 cash for insurance expense.

Required

a. Which of these events affect period (selling and administrative) costs? Which result in product costs? If neither, label the transaction NA.

b. Record each event in a horizontal statements model like the following one. The first event is recorded as an example.