Cain Company began the 2006 accounting period with \($18,000\) cash, \($50,000\) inventory, \($40,000\) com¬ mon stock, and \($28,000\) retained earnings. During the 2006 accounting period, Cain experienced the following events:

1. Sold merchandise costing \($38,200\) for \($66,500\) on account to Jones’ General Store.

2. Delivered the goods to Jones under terms FOB destination. Freight costs were \($600\) cash.

3. Received returned damaged goods from Jones. The goods cost Cain \($4,000\) and were sold to Jones for \($7,600\).

4. Granted Jones a \($2,000\) allowance for other damaged goods that Jones agreed to keep.

5. Collected partial payment of \($52,000\) cash from accounts receivable.

Required:

a. Record the events in a statements model like the one shown below.

b. Prepare an income statement, balance sheet, and statement of cash flows.

c. Why would Cain grant the \($2,000\) allowance to Jones? Who benefits more?

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Assets Equity Rev. - Exp. = Net Inc. Cash Flow Cash + Accts. Rec. + Inv. = Com. Stk. + Ret. Earn.