To support herself while attending school, Ellen Abba sold computers to other students. During her first year of operation, she sold computers that had cost her \($120,000\) cash for \($260,000\) 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 5 percent of sales. During the year she paid \($920\) cash to replace a defective hard drive.

Required:

a. Prepare an income statement and statement of cash flows for Abba’s first year of operation.

b. Explain the difference between net income and the amount of cash flow from operating activities.