Question

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P11-57A: Coleman Motors, Inc, was formed on January 1, 2018. The following tranasctions occured 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 FIFO (First in First Out) 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 $5000 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, with 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, Decembr 31, 2018. Format cash flows from operating activities using the indirect method.

Answer 1

1. Income statement:

Sales 426,000

Less: COGS 222,000 (Refer Working 1)

Less: Rent 19,000

Less: Depreciation 28,000 (140,000 / 5)

Less: Payroll 90,000

Less: Income tax 14,000

Net Profit 53,000

Less: Dividends 29,000

Amount transferred

to Balance Sheet 24,000

Working 1: Cost of Goods Sold (COGS)

Purchase 5 cars @ 35,000

Purchase 6 cars @ 47,000

Sold 6 cars at FIFO i.e. 5 cars @ 35,000 and 1 car @ 47,000

= (5 * 35,000) + (1 * 47,000)

COGS = 222,000

2. Balance Sheet:

Liabilities	Amount	Calculation		Assets	Amount	Calculation
Common stock	3,50,000			Equipment	1,12,000	140000-28000
P&L	24,000	From P&L		Inventory	2,35,000	5*47000
Creditors	84,600	282000-197400		Debtors	42,600	426000*10%
Salary payable	5,000			Cash	74,000	Working 2
Total	4,63,600			Total	4,63,600

Working 2: Cash

Transactions	Amount
Common stock	3,50,000
Equipment	-1,40,000
Cash Purchase	-1,75,000
Rent	-19,000
Cash Purchase	-1,97,400
Cash Sales	3,83,400
Payroll	-85,000
Income tax	-14,000
Dividend	-29,000
Net cash	74,000

3. Cash flow statement:

Cash flow from Operating activities

Net profit 53,000

Add: Depreciation 28,000

Less: Increase in inventory 235,000

Less: Increase in debtors 42,600

Add: Increase in creditors   84,600

Add: Increase in salary payable 5,000

Net cash flow -107,000 (A)

Cash flow from Investing activities

Purchase of equipment -140,000 (B)

Cash flow from Investing activities

Common stock issued 350,000

Less: Dividend paid 29,000

Net cash flow 321,000 (C)

Opening cash 0

Net cash flows (A+B+C)   74,000

Closing Cash 74,000