Fairfax Fine Automobiles, Inc., was formed on January 1, 2014. The following transactions occurred during 2014: On January 1, 2014, Fairfax issued its common stock for $ 300,000. Early in January, Fairfax made the following cash payments:
a. $ 150,000 for equipment
b. $ 136,000 for inventory (four cars at $ 34,000 each)
c. $ 24,000 for 2014 rent on a store building
In February, Fairfax purchased nine cars for inventory on account. Cost of this inventory was $ 405,000 ($ 45,000 each). Before year-end, Fairfax paid $ 164,200 of this debt. Fairfax uses the FIFO method to account for inventory.
During 2014, Fairfax sold seven autos for a total of $ 497,000. Before year- end, Fairfax collected 90% of this amount.
The business employs three people. The combined annual payroll is $ 102,000, of which Fairfax owes $ 9,000 at year- end. At the end of the year, Fairfax paid income tax of $ 17,500. Late in 2014, Fairfax declared and paid cash dividends of $ 20,000.
For equipment, Fairfax uses the straight- line depreciation method, over five years, with zero residual value.
1. Prepare Fairfax Fine Automobiles, Inc.’s income statement for the year ended December 31, 2014. Use the single-step format, with all revenues listed together and all expenses together.
2. Prepare Fairfax’s balance sheet at December 31, 2014.
3. Prepare Fairfax’s statement of cash flows for the year ended December 31, 2014. Format cash flows from operating activities by using the indirect method.