Q39PGB
Question
Classic Rare Coins (CRC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, CRC issued no-par common stock for \(525,000.
b. Early in January, CRC made the following cash payments:
1. For store fixtures, \)51,000
2. For merchandise inventory, \(240,000
3. For rent expense on a store building, \)18,000
c. Later in the year, CRC purchased merchandise inventory on account for \(243,000. Before year-end, CRC paid \)153,000 of these accounts payable.
d. During 2018, CRC sold 2,800 units of merchandise inventory for \(325 each. Before year-end, the company collected 95% of this amount. Cost of goods sold for the year was \)290,000, and ending merchandise inventory totaled \(193,000.
e. The store employs three people. The combined annual payroll is \)82,000, of which CRC still owes \(5,000 at year-end.
f. At the end of the year, CRC paid income tax of \)17,000. There were no income taxes payable.
g. Late in 2018, CRC paid cash dividends of $38,000.
h. For store fixtures, CRC uses the straight-line depreciation method, over five years, with zero residual value.
Requirements
1. What is the purpose of the statement of cash flows?
2. Prepare CRC’s income statement for the year ended December 31, 2018. Use the single-step format, with all revenues listed together and all expenses listed together.
3. Prepare CRC’s balance sheet at December 31, 2018.
4. Prepare CRC’s statement of cash flows using the indirect method for the year ended December 31, 2018.
Step-by-Step Solution
Verified- Preparing a cash flow statement is to know the exact details of cash receipts and payments.
- Net income for the year ended December 31, 2018, is $492,800.
- Total Assets equals $1,074,800 and Total Liabilities and shareholders’’ equity equals $1,074,800.
- Net cash flow for the year ended December 31, 2018, is $795,500
The purpose of the cash flow statement is to identify the entity’s cash inflow and cash outflow. It provides a detailed picture of the entity, that helps the reader to understand more and clearly. It helps the investors to identify whether the entity is cash generating or not. Inflows and outflows are further classified into operating, investing, and financing activities. An entity can also get a clear view of the funds available for future growth.
| Classic Rare Coins Income Statement For the year ended December 31, 2018 | |
Revenues |
|
Sales revenue (2,800 x $325) | $910,000 |
Expenses: |
|
Cost of goods sold | $290,000 |
Depreciation ($51,000 / 5) | $10,200 |
Other operating expense ($82,000+$18,000) | $100,000 |
Income tax | $17,000 |
Net Income | $492,800 |
| Classic Rare Coins Balance Sheet For the year ended December 31, 2018 | |
Assets: |
|
Store Fixtures net | $40,800 |
Account Receivables | $45,500 |
Cash | $795,500 |
Merchandise Inventory | $193,000 |
Total | $1,074,800 |
Common stock | $525,000 |
Retained earnings ($492,800-$38,000) | $454,800 |
Account payable | $90,000 |
Accrued liabilities | $5,000 |
Total | $1,074,800 |
Classic Rare Coins Balance Sheet For the year ended December 31, 2018 | |
Cash Flows From Operating Activities: |
|
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: |
|
Net Income | $492,800 |
Depreciation expense | $10,200 |
Increase in account receivables | ($45,500) |
Increase in merchandise inventory | ($193,000) |
Increase in account payable | $90,000 |
Increase in accrued liabilities | $5,000 |
Net cash provided/ (used) in operating activities | $359,500 |
Cash Flows From Investing Activities: |
|
Purchase of store fixtures | ($51,000) |
Net cash provided/ (used) in investing activities | ($51,000) |
Cash Flows From Financing Activities: |
|
Issuance of common stock | $525,000 |
Dividend paid | ($38,000) |
Net cash provided/ (used) in financing activities | $487,000 |
Net change in cash | $795,500 |