
Identifying the purpose and preparing the statement of
American Rare Coins (ARC) was formed on January 1, 2018. Additional data for the year follow:
a. On January 1, 2018, ARC issued no par common stock for $450,000.
b. 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
c. Later in the year, ARC purchased merchandise inventory on account for $239,000. Before year-end, ARC paid $139,000 of this accounts payable.
d. During 2018, ARC sold 2,400 units of merchandise inventory for $275 each. Before year-end, the company collected 85% of this amount. Cost of goods sold for the year was $250,000, and ending merchandise inventory totalled $329,000.
e. The store employs three people. The combined annual payroll is $96,000, of which ARC still owes $3,000 at year-end.
f. At the end of the year, ARC paid income tax of $17,000. There are no income taxes payable.
g. Late in 2018, ARC paid cash dividends of $44,000.
h. For store fixtures, ARC uses the
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 at December 31, 2018. - Prepare ARC’s statement of cash flows using the indirect method for the year ended December 31, 2018.

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