The beginning account balances for Terrys Auto Shop as of January 1, Year 2, follow:

Account Titles	Beginning Balances
Cash	$	6,060
Inventory		3,190
Common Stock		7,330
Retained Earnings		1,920

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

1. Purchased merchandise on account that cost $4,110.
2. The goods in Event 1 were purchased FOB shipping point with transportation cost of $235 cash.
3. Returned $425 of damaged merchandise.
4. Agreed to keep other damaged merchandise for which the company received a $275 allowance.
5. Sold merchandise that cost $2,670 for $4,810 cash.
6. Delivered merchandise to customers in Event 5 under terms FOB destination with transportation costs amounting to $195 cash.
7. Paid $2,950 on the merchandise purchased in Event 1.

c. Explain why a difference exists between net income and net cash flow from operating activities.

• The difference between net income and cash flow from operating activities is because not all of the inventory that has been sold was paid for.

• The difference between net income and net cash flow from operating activities exists because of maintaining the inventory records using the perpetual inventory system.

• The difference between net income and net cash flow from operating activities exists because operating expenses are not required to be accounted for when determining net income.

Required a. Organize appropriate accounts under an accounting equation. Record the beginning balances and the transaction data in the accounts. In the last column of the table, provide appropriate input neededs for the Retained Earnings amounts. (Enter any decreases to account balances with a minus sign. Not all cells in the "Accounts Titles for Retained Earnings" column may require an input- leave cells blank if there is no corresponding Retained Earnings input needed.) TERRY'S AUTO SHOP Events + + + + Beg. Bal. 1. Pur. Inv. 2. Transport 3. Ret. Inv. + + Effect of Events on the Financial Statements Assets Liabilities + Stockholders' Equity Accounts Common Retained Accounts Titles for Retained Cash Inventory Payable Stock Earnings Earnings 6,060 + 3,190 = 7,330 + 1,920 4,110 = 4,110 + (235) + 235 = (425) = (425) + (275) = (275) + 4,810 4,810 Sales (2,670) (2,670) Cost of sales (195) (195) Transportation out expenses (2,950) + (2,950) + 7,490 4,165 = 460 + 3,865 + 4. Allow + + 5a. Sales 5b. Cost 6. Tran. + ++ 7. Paid AP + End Bal. 7,330 + b. Prepare an income statement and a statement of cash flows for Year 2. (Assume that closing entries have been made.) Complete this question by entering your answers in the tabs below. Terry Inc Stmt Terry Stmt CF Prepare an income statement. TERRY'S AUTO SHOP Income Statement For the Year Ended December 31, Year 2 0 Operating expenses $ 0 Terry Inc Stmt Terry Stmt CF > Complete this question by entering your answers in the tabs below. Terry Inc Stmt Terry Stmt CF Prepare a statement of cash flows. (Cash outflows should be indicated with a minus sign.) TERRY'S AUTO SHOP Statement of Cash Flows For the Year Ended December 31, Year 2 Cash flow from operating activities $ 0 Net cash flow from operating activities Cash flows from investing activities Cash flows from financing activities Net change in cash 0 Ending cash balance $ 0