Question

 

The trial balance for Terry’s Auto Shop as of January 1, Year 2, follows:

Account Titles	Debit			Credit
Cash	$	14,760
Inventory		3,170
Common Stock				$	7,310
Retained Earnings					10,620
Total	$	17,930		$	17,930

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

Purchased merchandise on account that cost $4,140.

The goods in Event 1 were purchased FOB shipping point with freight cost of $215 cash.

Returned $405 of damaged merchandise for credit on account.

Agreed to keep other damaged merchandise for which the company received an $250 allowance.

Sold merchandise that cost $2,630 for $13,000 cash.

Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $150 cash.

Paid $2,840 on the merchandise purchased in Event 1.

Paid $8,600 cash for operating expenses.

c. Prepare a multistep income statement, balance sheet, and statement of cash flows. (Assume that closing entries have been made.)

Complete this question by entering your answers in the tabs below.

Income Statement

Balance Sheet

Statement of Cash Flows

Answer 1

Terry's Auto Shop
Income Statement
For Year 2
Sales revenue		13000
Cost of goods sold		2630
Gross profit		10370
Expenses:
Freight-out	150
Operating expenses	8600
Total expenses		8750
Net income $		1620

Terry's Auto Shop
Balance Sheet
Year 2
Assets
Cash	15955
Inventory	4240
Total assets	20195
Liabilities
Accounts payable	645
Stockholders' Equity
Common stock	7310
Retained earnings	12240
Total stockholders' equity	19550
Total liabilities and stockholders' equity	20195

Terry's Auto Shop
Statement of Cash Flows
For Year 2
Cash flow from operating activities
Net income		1620
Adjustments to reconcile net income to
Net cash provided by operating activities
Increase in inventory	-1070
Increase in accounts payable	645	-425
Net cash provided by operating activities		1195
Cash flow from investing activities		0
Cash flow from financing activities		0
Net increase (decrease) in cash		1195
Cash balance, January 1, Year 2		14760
Cash balance, December 31, Year 2		15955

Note: The statement of cash flows has been prepared using the indirect method in the absence of specific instructions regarding the same.

Outflows and decreases to cash are shown with a minus sign.