Exercise 7-6 Effect of warranties on income and cash flow LO 7-4 To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $161,000 and sold them for $302,000 cash. She provided her customers with a one-year warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 6 percent of sales. During the year, she paid $1,910 cash to replace a defective tuner. Required a-1. Prepare an income statement for Deloch's first year of operation. a-2. Prepare a statement of cash flows for Deloch's first year of operation. Complete this question by entering your answers in the tabs below. Required A1 Required A2 Prepare an income statement for Deloch's first year of operation. DELOCH STEREOS Income Statement Sales revenue Cost of goods sold Gross margin Warranty expense Net income $ 302,000 (161,000) 141,000 (18,120) $ 122,880 Required A1 Required A2 > Required A1 Required A2 Prepare a statement of cash flows for Deloch's first year of operation. (Amounts to be deducted should be in minus sign.) DELOCH STEREOS Statement of Cash Flows Cash flows from operating activities Inflow from customers Inflow from customers Outflow for warranty expense Outflow to Purchase Inventory Inflow from stock issued Ending cash balance