Question

Required information (The following information applies to the questions displayed below.) The beginning account balances for Terry's Auto Shop as of January 1, Year 2, follows: Account Titles Cash Inventory Common Stock Retained Earnings Beginning Balances $6,160 3. 120 7,420 1.860 The following events affected the company during the Year 2 accounting period: 1. Purchased merchandise on account that cost $4,240. 2. The goods in Event 1 were purchased FOB shipping point with freight cost of $240 cash. 3. Returned $405 of damaged merchandise for credit on account 4. Agreed to keep other damaged merchandise for which the company received an $270 allowance. 5. Sold merchandise that cost $2,630 for $4,910 cash. 6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $150 cash. 7. Paid $2,930 on the merchandise purchased in Event 1.

Answer 1

b)

TERRY'S AUTO SHOP
Income Statement
For the Year Ended December 31, Year 2
Net sales	$4910
Cost of goods sold	2630
Gross profit	2280
Operating expenses
Transportation out	150
Net income	$2130

TERRY'S AUTO SHOP
Statement of Cash Flows
For the Year Ended December 31, Year 2
Cash flow from operating activities:
Cash received from customers	$4910
Cash paid for inventory purchase ($240+2930)	-3170
Cash paid for operating expenses	-150
Net cash flow from operating activities		$1590
Cash flow from investing activities		0
Cash flow from financing activities		0
Net increase in cash		1590
Add: Beginning cash balance		6160
Ending cash balance		$7750