The trial balance for Terrys Auto Shop as of January 1, 2016, follows:

Account Titles	Debit			Credit
Cash	$	16,000
Inventory		8,000
Common Stock				$	20,000
Retained Earnings					4,000
Total	$	24,000		$	24,000

The following events affected the company during the 2016 accounting period:

1.

Purchased merchandise on account that cost $15,000.

2.

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

3.

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

4.

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

5.

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

6.

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

7.

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

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. (Assume that closing entries have been made.)

d.	Why does a difference exists between net income and net cash flow from operating activities.

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

The difference between net income and net cash flow from operating activities exists because the shop is not selling all the inventory that it purchased during the period.

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