Identifying the purpose and preparing the statement of cash flows—indirect method American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year follow: On January 1, 2018, ARC issued no par common stock for $450,000. Early in January, ARC made the following cash payments: For store fixtures, $53,000 For merchandise inventory, $340,000 For rent expense on a store building, $20,000  Later in the year, ARC purchased merchandise inventory on account for $239,000. Before year-end, ARC paid $139,000 of this accounts payable. During 2018, ARC sold 2,400 units of merchandise inventory for $275 each. Before year-end, the company collected 85% of this amount. The cost of goods sold for the year was $250,000, and the ending merchandise inventory totaled $329,000. The store employs three people. The combined annual payroll is $96,000, of which ARC still owes $3,000 at year-end. At the end of the year, ARC paid an income tax of $17,000. There are no income taxes payable. Late in 2018, ARC paid cash dividends of $44,000. For store fixtures, ARC uses the straight-line depreciation method, over five years, with zero residual value. Requirements What is the purpose of the statement of cash flows? Prepare ARC’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. Prepare ARC’s balance sheet on December 31, 2018. Prepare ARC’s statement of cash flows using the indirect method for the year ended December 31, 2018.

Question

Identifying the purpose and preparing the statement of cash flows—indirect method

American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year follow:

  • On January 1, 2018, ARC issued no par common stock for $450,000.
  • Early in January, ARC made the following cash payments:
  1. For store fixtures, $53,000
  2. For merchandise inventory, $340,000
  3. For rent expense on a store building, $20,000
  •  Later in the year, ARC purchased merchandise inventory on account for $239,000. Before year-end, ARC paid $139,000 of this accounts payable.
  • During 2018, ARC sold 2,400 units of merchandise inventory for $275 each. Before year-end, the company collected 85% of this amount. The cost of goods sold for the year was $250,000, and the ending merchandise inventory totaled $329,000.
  • The store employs three people. The combined annual payroll is $96,000, of which ARC still owes $3,000 at year-end.
  • At the end of the year, ARC paid an income tax of $17,000. There are no income taxes payable.
  • Late in 2018, ARC paid cash dividends of $44,000.
  • For store fixtures, ARC 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 ARC’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 ARC’s balance sheet on December 31, 2018.
  4. Prepare ARC’s statement of cash flows using the indirect method for the year ended December 31, 2018.

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