/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Q32PGA American Rare Coins (ARC) was fo... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 14: Q32PGA (page 783)

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:

  1. For store fixtures, \)53,000
  2. For merchandise inventory, \(340,000
  3. For rent expense on a store building, \)20,000

c. Later in the year, ARC purchased merchandise inventory on account for \(239,000. Before year-end, ARC paid \)139,000 of these 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 totaled \(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 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鈥檚 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鈥檚 balance sheet at December 31, 2018.

Prepare ARC鈥檚 statement of cash flows using the indirect method for the year ended December 31, 2018.

Short Answer

Expert verified
  1. To know the exact details of the cash inflow and outflow.
  2. Net income for the year ended December 31, 2018, is $266,400
  3. Total assets are $775,400 and total liabilities and stockholders鈥� equity are $775,400
  4. Net cash flow for the year ended December 31, 2018, is $305,000

Step by step solution

01

The purpose of the statement of cash flows

The cash flow statement is part of the financial statements. It shows the correct picture of the cash flow. It makes it easy for the reader of the financial statements to know how much the company has borrowed the amount or how much it invests. There are several incomes of the company, cash flow statements facilitate the reader to have a knowledge of the fund flow of the company鈥檚 primary business other than other incomes of the company.

02

Income statement for the year ended December 31, 2018

American Rare Coins

Income Statement

For the year ended December 31, 2018

Revenues

Sales revenue (2,400 x $275)

$660,000

Expenses:

Cost of goods sold

$250,000

Depreciation($53,000 / 5)

$10,600

Other operating expense ($96,000+$20,000)

$116,000

Income tax

$17,000

Net Income

$266,400

03

Balance sheet at December 31, 2018

American Rare Coins

Balance Sheet

For the year ended December 31, 2018

Current Assets:

Cash

$305,000

Merchandise Inventory

$329,000

Account Receivables ($660,000 x 15%)

$99,000

Long-term Assets:

Store Fixtures net

$42,400

Total Assets

$775,400

Current Liabilities:

Account payable

$100,000

Accrued liabilities

$3,000

Total Liabilities

$103,000

Stockholder鈥檚 Equity

Common stock

$450,000

Retained earnings ($266,400 - $44,000)

$222,400

Total Stockholder鈥檚 Equity

$672,400

Total Liabilities and Stockholder鈥檚 Equity

$775,400

04

Statement of cash flows using the indirect method

American Rare Coins

Statement of Cash Flows

For the year ended December 31, 2018

Cash Flows From Operating Activities:

Net Income

$266,400

Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:

Depreciation expense

$10,600

Increase in account receivables ($660,000 鈥� ($660,000x 85%)

($99,000)

Increase in merchandise inventory ($340,000 -$250,000)

($90,000)

Decrease in account payable($239000-$100,000)

($139,000)

Increase in accrued liabilities ($96,000 -$93,000)

$3,000

Net cash provided/ (used) in operating activities

($48,000)

Cash Flows From Investing Activities:

Purchase of store fixtures

($53,000)

Net cash provided/ (used) in investing activities

($53,000)

Cash Flows From Financing Activities:

Issuance of common stock

$450,000

Dividend paid

($44,000)

Net cash provided/ (used) in financing activities

$406,000

Net change in cash

$305,000

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Computing operating activities cash flow鈥攊ndirect method

The records of Vintage Color Engraving reveal the following:

Net income \( 36,000

Depreciation expense \) 5,000

Sales revenue 53,000

Decrease in current liabilities 19,000

Loss on sale of land 4,000

Increase in current assets other than cash 10,000

Acquisition of land 35,000

Compute cash flows from operating activities by the indirect method for year ended December 31, 2018.

Preparing the statement of cash flows鈥攊ndirect method The income statement of Boost Plus, Inc. follows: Gross Profit Net Sales Revenue Cost of Goods Sold Salaries Expense 137,000 94,000 3,000 56,000 \( 54,000 81,000 Depreciation Expense鈥撯�揚lant Assets Net Income Before Income Taxes Income Tax Expense Net Income Total Operating Expenses 27,000 \) 53,000 BOOST PLUS, INC. Income Statement Year Ended September 30, 2018 Operating Expenses: \( 231,000 Additional data follow: a. Acquisition of plant assets is \)124,000. Of this amount, \(108,000 is paid in cash and \)16,000 by signing a note payable. b. Cash receipt from sale of land totals \(20,000. There was no gain or loss. c. Cash receipts from issuance of common stock total \)36,000. d. Payment of notes payable is \(15,000. e. Payment of dividends is \)5,000. f. From the balance sheet: September 30 2018 2017 Cash \( 39,000 \) 13,000 Accounts Receivable 46,000 61,000 Merchandise Inventory 94,000 88,000 Land 82,000 102,000 Plant Assets 214,000 90,000 Accumulated Depreciation (61,000) (34,000) Accounts Payable 32,000 15,000 Accrued Liabilities 12,000 20,000 Notes Payable (long-term) 16,000 15,000 Common Stock, no par 40,000 4,000 Retained Earnings 314,000 266,000 Prepare Boost Plus鈥檚 statement of cash flows for the year ended September 30, 2018, using the indirect method. Include a separate section for non-cash investing and financing activities

Question: Classifying items on the statement of cash flows Cash flow items

must be categorized into one of four categories. Identify each item as operating (O), investing (I), financing (F), or non-cash (N).

a. Cash purchase of merchandise inventory

b. Cash payment of dividends

c. Cash receipt from the collection of long-term notes receivable

d. Cash payment for income taxes

e. Purchase of equipment in exchange for notes payable

f. Cash receipt from the sale of land

g. Cash received from borrowing money

h. Cash receipt for interest income

i. Cash receipt from the issuance of common stock

j. Cash payment of salaries

Preparing the statement of cash flows鈥攊ndirect method, evaluating cash flows, and measuring free cash flows

The comparative balance sheet of Robeson Educational Supply at December 31, 2018, reported the following:

2018 2017 Current Assets: Cash \( 83,900 \) 20,500 Accounts Receivable 14,500 21,800 Merchandise Inventory 61,800 60,400 Current Liabilities: Accounts Payable 29,600 28,100 Accrued Liabilities 10,500 11,900 Robeson鈥檚 transactions during 2018 included the following:

Payment of cash dividends \( 21,200

Depreciation expense \) 17,400

Purchase of equipment with cash 54,400

Purchase of building with cash 103,000

Issuance of long-term notes payable to borrow cash 44,000

Net income 63,600

Issuance of common stock for cash 111,000

Requirements

1. Prepare the statement of cash flows of Robeson Educational Supply for the year ended December 31, 2018. Use the indirect method to report cash flows from operating activities.

2. Evaluate Robeson鈥檚 cash flows for the year. Mention all three categories of cash flows, and give the reason for your evaluation.

3. If Robeson plans similar activity for 2018, what is its expected free cash flow?

Moss Exports is having a bad year. Net income is only \(60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss鈥檚 accounts receivable are ballooning. The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company鈥檚 financial statements. Moss鈥檚 bank closely examines cash flow from operating activities. Daniel Peavey, Moss鈥檚 controller, suggests reclassifying the receivables from the slow-paying clients as long-term. He explains to the board that removing the \)80,000 increase in accounts receivable from current assets will increase net cash provided by operations. This approach may help Moss get the loan.

Requirements

  1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables. Which reporting makes Moss look better?
  2. Under what condition would the reclassification of the receivables be ethical? Unethical?
See all solutions

Recommended explanations on Business Studies Textbooks

Startups

Read Explanation

Organizational Communication

Read Explanation

Accounting

Read Explanation

Actuarial Science in Business

Read Explanation

Family Business

Read Explanation

Influences On Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.