Exercise 7-6A (Static) 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 $140,000 and sold them for $250,000 cash. She provided her customers with a one-yea warranty against defects in parts and labor. Based on industry standards, she estimated that warranty claims would amount to 2 percent of sales. During the year, she paid $2,820 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. Required A1 Required A2 Prepare an income statement for Deloch's first year of operation. Sales revenue DELOCH STEREOS Income Statement Cost of goods sold Gross margin Warranty expense Net income $ Required A1 Required A2 > Required A1 Required A2 Prepare a statement of cash flows for Deloch's first year of operation. (Cash outflows should DELOCH STEREOS Statement of Cash Flows Cash flows from operating activities Inflow from customers Outflow to purchase inventory Outflow for warranty expense Net cash flow from operating activities $ 0 Cash flows from investing activities Cash flows from financing activities Net change in cash Plus: Beginning cash balance Ending cash balance $ 0 < Required A1 Required A2 >