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17 November, 16:42

To support herself while attending school, Daun Deloch sold stereo systems to other students. During the first year of operations, Deloch purchased the stereo systems for $140,000 and sold them for $250,000 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 2 percent of sales. During the year, she paid $2,820 cash to replace a defective tuner.

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

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  1. 17 November, 16:52
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    Daun's first year of operation

    Income statement

    Sales Revenues $250,000

    Less

    Cost Of Sales $ 140,000

    Less

    Expenses $ 2820

    Warranty Claims 5000

    Net Income 102,180

    Daun's first year of operation

    Cash Flows statement

    Net Earnings $250,000

    Less

    Cash Paid for

    Inventory Costs $ 140,000

    Replacements $ 2820

    Net Income 107,180
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