Stark Company began the 2011 accounting period with \(\$ 10,000\) cash, \(\$ 38,000\) inventory, \(\$ 25,000\) common stock, and \(\$ 23,000\) retained earnings. During 2011, Stark experienced the following events:

1. Sold merchandise costing \(\$ 28,000\) for \(\$ 46,000\) on account to Jack's Furniture Store.

2. Delivered the goods to Jack's under terms FOB destination. Freight costs were \(\$ 500\) cash.

3. Received returned goods from Jack's. The goods cost Stark \(\$ 2,000\) and were sold to Jack's for \(\$ 3,000\).

4. Granted Jack's a \(\$ 2,000\) allowance for damaged goods that Jack's agreed to keep.

5. Collected partial payment of \(\$ 25,000\) cash from accounts receivable.

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. Why would Jack's agree to keep the damaged goods? Who benefits more?