The trial balance for Terry’s Auto Shop as of January 1, Year 2, follows: Account Titles Debit Credit
Cash $ 16,000
Inventory 8,000
Common Stock $ 20,000
Retained Earnings 4,000
Total $ 24,000 $24,000
The following events affected the company during the Year 2 accounting period:
1. Purchased merchandise on account that cost $15,000.
2. The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash.
3. Returned $2,600 of damaged merchandise for credit on account.
4. Agreed to keep other damaged merchandise for which the company received an $1,100 allowance.
5. Sold merchandise that cost $15,000 for $31,000 cash.
6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash.
7. Paid $8,000 on the merchandise purchased in Event 1.
8. Paid $9,000 cash for operating expenses.
Required
a. Record the events in general journal format.
b. Open general ledger T-accounts with the appropriate beginning balances, and post the journal entries to the T-accounts.
c. Prepare an income statement, balance sheet, and statement of cash flows.
d. Explain why a difference does or does not exist between net income and net cash flow from operating activities.