Purpose of the statement and preparing the statement of cash flows—indirect method [40-50 min]
National Reserve Rare Coins (NRRC) was formed on January 1, 2012. Additional data for the year follows:
a. | On January 1, 2012, NRRC issued common stock for $525,000. |
b. | Early in January, NRRC made the following cash payments: 1. For store fixtures, $55,000. 2. For inventory, $320,000. 3. For rent expense on a store building, $17,000. |
c. | Later in the year, NRRC purchased inventory on account for $244,000. Before year-end, NRRC paid $164,000 of this account payable. |
d. | During 2012, NRRC sold 2,500 units of inventory for $400 each. Before year end, the company collected 85% of this amount. Cost of goods sold for the year was $320,000, and ending inventory totaled $244,000. |
e. | The store employs three people. The combined annual payroll is $80,000, of which NRRC still owes $3,000 at year-end. |
f. | At the end of the year, NRRC paid income tax of $20,000. |
g. | Late in 2012, NRRC paid cash dividends of $39,000. |
h. | For equipment, NRRC uses the straight-line depreciation method, over five years, with zero residual value. |
Requirements
1. What is the purpose of the cash flow statement?
2. Prepare NRRC’s income statement for the year ended December 31, 2012. Use the single-step format, with all revenues listed together and all expenses listed together.
3. Prepare NRRC’s balance sheet at December 31, 2012.
4. Prepare NRRC’s statement of cash flows using the indirect method for the year ended December 31, 2012.
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