To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Daun purchased the stereo systems for $250,000 and sold them for $360,000 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 3 percent of sales. During the year she paid $3,920 cash to replace a defective tuner.

Required

Prepare an income statement and statement of cash flows for Dauns first year of operation. (Statement of Cash Flows only, items to be deducted must be indicated with a negative amount.)

DAUN'S STEREOS
Income Statement

DAUN'S STEREOS
Statement of Cash Flows
Cash flow from operating activities:
Net cash flow from operating activities
Cash flows from investing activities
Cash flows from financing activities
Net change in cash
Ending cash balance

What is Dauns total warranties liability at the end of the accounting period?