Use the information below to prepare the following financial statements for ABC Corporation.

Income Statements for Y1

Balance sheets as of December 31, Y1

Statements of cash flows for Y1 using the indirect method

Round to the nearest dollar.

Policies:

Furniture depreciation: Straight-line basis, using a five-year useful life and salvage value equal to 10% of the purchase cost.

Accounts Receivable: We expect to collect 90% of outstanding accounts receivable.

Gift cards: We expect 8% of all gift cards sold to go unused.

Ignore income taxes.

Transactions

Y1

Date: October 1

ABC Corp was formed by issuing 100,000 shares of no par-value common stock for $8 per share. The company also took out a loan for $600,000. The loan is payable in 4 equal installments of $150,000 and carries an annual interest rate of 6%. The interest and principal are due each year on October 1. The company paid $180,000 to cover rent for the next 12 months, purchased furniture for $400,000, and hired four employees, each with a salary of $10,000 per month (paid at the end of the month). Utility costs are $5,000 per month and each bill is paid at the end of the month. The company paid $60,000 for a one-year insurance policy that will cover them through September 30, Y2. To get business started, ABC purchased 10,000 units of inventory on account for $60 each.

Date: December 31

Here is a summary of our activity for the year. We sold 7,000 units of inventory for $110 each on account and sold 500 gift cards. Each card cost $800 and entitled holders to obtain 10 inventory units. We distributed 2,000 units to customers using their gift cards. To encourage sales, we adopted a very flexible return policy. As a result, 900 units were returned for full cash refunds. Given this evidence, we expect an additional 200 units to be returned next year. During the year we collected $600,000 on our accounts receivable. We did not write-off any of the accounts, but we believe that we will eventually collect 90% of the outstanding accounts. We paid cash dividends of $30,000. At the end of the year, we still owed $130,000 to suppliers for our inventory.