Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. Assume that Frank Company uses a perpetual inventory system.Increase = I Decrease = D No Effect = NA(Note that "No Effect" means that the event does not effect that element of the financial statements or that the event causes an increase in that element that is offset by a decrease in that same element.) Wetzel Co. paid $100 cash to a freight company for delivering inventory that Wetzel had purchased from Jacobs Company with freight terms FOB shipping point.AssetsLiabilitiesStk. EquityRevenuesExpensesNet IncomeStmt of Cash Flows???????
What will be an ideal response?
(NA) (NA) (NA) (NA) (NA) (NA) (D)
Because incurring transportation-in costs is necessary to obtain inventory, these costs are added to the inventory account. The freight cost increases one asset account (Merchandise Inventory) and decreases another asset account (Cash). Net income is not affected by this transaction because transportation-in costs are not expensed when they are incurred. Instead, they are expensed as part of cost of goods sold when the inventory is sold. However, the cash paid for transportation-in costs is reported as an outflow in the operating activities section of the statement of cash flows.
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