Question
Classic Automobiles of Huntsville Ltd. was formed on January 1, 2016, when Classic issued common shares for $300,000. Early in January 2016, Classic made the
Classic Automobiles of Huntsville Ltd. was formed on January 1, 2016, when Classic issued common shares for $300,000. Early in January 2016, Classic made the following cash payments:
- $150,000 for equipment
- $120,000 for inventory (four cars at $30,000 each)
- $20,000 for 2016 rent on a store building
In February 2016, Classic purchased six cars for inventory on account. Cost of this inventory was $260,000 ($43,333.33 each). Before year-end, Classic paid $208,000 of this debt. Classic uses the FIFO method to account for inventory.
During 2016, Classic sold eight vintage autos for a total of $500,000. Before year-end, Classic collected 80% of this amount.
The business employs three people. The combined annual payroll is $95,000, of which Classic owes $4,000 at year-end. At the end of the year, Classic paid an income tax of $10,000.
Late in 2016, Classic declared and paid cash dividends of $11,000.
For equipment, Classic uses the straight-line depreciation method over five years with zero residual value.
- Prepare Classic Automobiles of Huntsville Ltd.s income statement for the year ended December 31, 2016. Use the single-step format with all revenues listed together and all expenses listed together.
- Prepare Classics balance sheet on December 31, 2016.
- Prepare Classics statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the indirect method.
- Comment on the business performance based on the statement of cash flows.
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