Lexington Luxury Automobiles, Inc., was formed on January 1, 2014. The following transactions occurred during 2014: On January 1, 2014, Lexington issued its common stock for $450,000. Early in January, Lexington made the following cash payments:
a. $175,000 for equipment
b. $234,000 for inventory (six cars at $39,000 each)
c. $16,000 for 2014 rent on a store building
In February, Lexington purchased four cars for inventory on account. Cost of this inventory was $188,000 ($47,000 each). Before year-end, Lexington paid $75,300 of this debt. Lexington uses the FIFO method to account for inventory.
During 2014, Lexington sold seven vintage autos for a total of $490,000. Before year-end, Lexington collected 50% of this amount. The business employs two people. The combined annual payroll is $78,000, of which Lexington owes $8,000 at year-end. At the end of the year, Lexington paid income tax of $19,500. Late in 2014, Lexington declared and paid cash dividends of $22,000. For equipment, Lexington uses the straight-line depreciation method, over five years, with zero residual value.
1. Prepare Lexington Luxury 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 Lexington’s balance sheet at December 31, 2014.
3. Prepare Lexington’s statement of cash flows for the year ended December 31, 2014. Format cash flows from operating activities by using the indirect method.