Question

North American Reserve Rare Coins (NARRC) was formed on January 1, 2018. Additional data for the year follow: (Click the icon to view the transactions.) Read the requirements. Requirement 1. Prepare NARRC'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. North American Reserve Rare Coins Income Statement Year Ended December 31, 2018 Revenue: Expenses: Total Expenses Net Income

Answer 1

Requirement 1: Single step income statement

North American Reserve Rare Coins
Income Statement
Year Ended December 31,2018
Revenues:
Sales revenue		$725,000
Expenses:
Rent expense	$10,000
Cost of goods sold	$310,000
Payroll expense	$96,000
Income tax expense	$15,000
Depreciation expense	$9,400
Total expenses		$440,400
Net income		$284,600

Explanations:

Revenues:
c	Sales (2,900 units x $250)	$725,000
Expenses:
b.3	Rent expense	$10,000
d	Cost of goods sold	$310,000
e	Payroll expense	$96,000
f	Income tax expense	$15,000
h	Depreciation expense ($47,000-0)/5 years	$9,400

Requirement 2: Balance Sheet

North American Reserve Rare Coins
Balance Sheet
Year Ended December 31,2018
Assets		Liabilities and stockholder's equity
Cash	$407,250	Accounts payable	$80,000
Accounts receivable	$108,750	Payroll payable	$2,000
Merchandise inventory	$271,000	Total liabilities	$82,000
Store fixtures	$47,000	Stockholder's equity:
(Less): Accumulated depreciation	($9,400)	Common stock	$500,000
		Retained earnings	$242,600
		Total stockholder's equity	$742,600
Total Assets	$824,600	Total liabilities and stockholder's equity	$824,600

Explanations:

i. Cash: See cash flow statement below

ii. Accounts receivable =  Total sales on account - 85% collection = 725,000 - (725,000 x 85%) = 108,750

iii.Accounts payable = Merchandise purchase on account - Paid for accounts payable = $241,000-$161,000 = $80,000

iv.Retained earnings = Net income - Dividends = $284,600-$42,000 = $242,600

Requirement 3: Cash flow statement

North American Reserve Rare Coins
Statement of cash flows (direct method)
Year Ended December 31,2018
Cash flows from Operating activities:
Paid for merchandise inventory	($340,000)
Paid for rent expense	($10,000)
Paid for accounts payable	($161,000)
Collected from customers (725,000 x 85%)	$616,250
Paid to employees (96,000 total-2,000 outstanding)	($94,000)
Paid for income tax	($15,000)
Net cash flows from operating activities (i)		($3,750)
Cash flows from investing activities:
Purchase of store fixtures	($47,000)
Net cash flows from investing activities (ii)		($47,000)
Cash flows from financing activities activities:
Issuance of common stock	$500,000
Paid for cash dividends	($42,000)
Net cash flows from financing activities (iii)		$458,000
Net increase(decrease) in cash (i+ii+iii)		$407,250
Cash balance, Jan 1,2018		$0
Cash balance, Dec 31,2018		$407,250