Question

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

Account Titles	Debit			Credit
Cash	$	14,860
Inventory		3,060
Common Stock				$	7,350
Retained Earnings					10,570
Total	$	17,920		$	17,920

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

1. Purchased merchandise on account that cost $4,130.
2. The goods in Event 1 were purchased FOB shipping point with freight cost of $225 cash.
3. Returned $420 of damaged merchandise for credit on account.
4. Agreed to keep other damaged merchandise for which the company received an $220 allowance.
5. Sold merchandise that cost $2,650 for $13,800 cash.
6. Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $130 cash.
7. Paid $2,980 on the merchandise purchased in Event 1.
8. Paid $8,820 cash for operating expenses.

Exercise 4-12A Part c

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

Prepare an income statement.

	TERRY'S AUTO SHOP Income Statement For the Year Ended December 31, Year 2

Prepare a balance sheet.

	TERRY'S AUTO SHOP Balance Sheet As of December 31, Year 2 Assets Total assets $0 Liabilities Total liabilities $0 Stockholders’ equity Total stockholders' equity 0 Total liabilities and stockholders' equity $0

• Prepare a statement of cash flows. (Assume that closing entries have been made.) (Statement of Cash Flows only, items to be deducted must be indicated with a negative amount.)

  	TERRY'S AUTO SHOP Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flow from operating activities Net cash flow from operating activities $0 Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $0

Answer 1

1)	TERRY'S AUTO SHOP
	Income Statement
	For the Year Ended December 31, Year 2
	Particular	Amount($)
	Net sales	13800
	Less : Cost of goods sold	-2650
	Gross profit	11150
	Operating expenses	-8820
	Transportation out	-130
	Net Income	2200

2)	TERRY'S AUTO SHOP
	Balance Sheet
	As of December 31, Year 2
	Particular	Amount($)
	Cash	16505
	Inventory	4125
	Total Assets	20630
	Liabilities
	Accounts payable	510
	Total liabilities	510
	Equity	7350
	Retained earnings	12770
	Total liabilities & shareholders equity	20630

Working :

	WORKING
	Accounting Equation
	Assets		Liabilities +	Equity
	Cash     +	Inventory    =	Accounts +	Common +	Retained
			payable	stock	earnings
Beg balance	14860	3060		7350	10570
1		4130	4130
2	-225	225
3		-420	-420
4		-220	-220
5a	13800				13800
5b		-2650			-2650
6	-130				-130
7	-2980		-2980
8	-8820				-8820
Total	16505	4125	510	7350	12770

3)

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	13800
Cash paid for inventory purchase ($225+2980)	-3205
Cash paid for operating expenses (8820+130)	-8950
Net cash flow from operating activities	1645
Cash flow from investing activities	0
Cash flow from financing activities	0
Net increase in cash	1645
Add: Beginning cash balance	14860
Ending cash balance	16505