Coleman Motors, Inc., was formed on January 1,2018. The following transactions occurred during 2018:On January 1, 2018, Coleman issued its common stock for $350,000. Early in January,Coleman made the following cash payments:a. $140,000 for equipmentb. $175,000 for inventory (five cars at $35,000 each)c. $19,000 for 2018 rent on a store buildingIn February, Coleman purchased six cars for inventory on account. The cost of this inventorywas $282,000 ($47,000 per car). Before year-end, the company paid off $197,400 of this debt.The company uses the first-in, first-out (FIFO) method to account for its inventory.During 2018, Coleman sold six autos for a total of $426,000. Before year-end, it had collected 90% of this amount.The business employs three people. The combined annual payroll is $90,000, of which Coleman owes $5,000 at year-end. At the end of the year, the company paid income taxes of $14,000.Late in 2018, Coleman declared and paid cash dividends of $29,000.For equipment, Coleman uses the straight-line depreciation method, over five years, withzero residual value.Requirements1. Prepare Coleman’s income statement for the year ended December 31, 2018. Use thesingle-step format, with all revenues listed together and all expenses together.2. Prepare Coleman’s balance sheet at December 31, 2018.3. Prepare Coleman’s statement of cash flows for the year ended December 31, 2018. Formatcash flows from operating activities using the indirect method.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
Coleman Motors, Inc., was formed on January 1,
2018. The following transactions occurred during 2018:
On January 1, 2018, Coleman issued its common stock for $350,000. Early in January,
Coleman made the following cash payments:
a. $140,000 for equipment
b. $175,000 for inventory (five cars at $35,000 each)
c. $19,000 for 2018 rent on a store building
In February, Coleman purchased six cars for inventory on account. The cost of this inventory
was $282,000 ($47,000 per car). Before year-end, the company paid off $197,400 of this debt.
The company uses the first-in, first-out (FIFO) method to account for its inventory.
During 2018, Coleman sold six autos for a total of $426,000. Before year-end, it had collected 90% of this amount.
The business employs three people. The combined annual payroll is $90,000, of which Coleman owes $5,000 at year-end. At the end of the year, the company paid income taxes of $14,000.
Late in 2018, Coleman declared and paid cash dividends of $29,000.
For equipment, Coleman uses the
zero residual value.
Requirements
1. Prepare Coleman’s income statement for the year ended December 31, 2018. Use the
single-step format, with all revenues listed together and all expenses together.
2. Prepare Coleman’s balance sheet at December 31, 2018.
3. Prepare Coleman’s statement of cash flows for the year ended December 31, 2018. Format
cash flows from operating activities using the indirect method.
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