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

Account Titles	Beginning Balances
Cash	$ 16,000
Inventory	8,000
Common Stock	20,000
Retained Earnings	4,000

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

Purchased merchandise on account that cost $15,000.

The goods in Event 1 were purchased FOB shipping point with freight cost of $800 cash.

Returned $2,600 of damaged merchandise for credit on account.

Agreed to keep other damaged merchandise for which the company received a $1,100 allowance.

Sold merchandise that cost $15,000 for $31,000 cash.

Delivered merchandise to customers in Event 5 under terms FOB destination with freight costs amounting to $500 cash.

Paid $8,000 on the merchandise purchased in Event 1.

Prepare an income statement and a statement of cash flows for Year 2. (Assume that closing entries have been made.)