Hodges Rare Collectibles (HRC) was formed on January 1, 2025. Additional data for the year follows: 

a. On January 1, 2025, HRC issued common stock for $425,000. b. Early in January, HRC made the following cash payments: 1. For store fixtures, $55,000.

2. For merchandise inventory, $300,000 3. For rent expense on a store building, $21,000 

c. Later in the year, HRC purchased merchandise inventory on account for $239,000. Before year-end, HRC paid $159,000 of this accounts payable. 

d. During 2025, HRC sold 3,100 units of merchandise inventory for $300 each. Before year-end, the company collected 80% of this amount. Cost of goods sold for the year was $250,000, and ending merchandise inventory totaled $289,000. 

e. The store employs three people. The combined annual payroll is $90,000, of which HRC still owes $7,000 at year-end. 

f. At the end of the year, HRC paid income tax of $20,000. There was no income taxes payable.

g. Late in 2025, HRC paid cash dividends of $41,000. 

h. For store fixtures, HRC uses the straight-line depreciation method, over five years, with zero residual value.  

Requirements 

1. Prepare HRC’s income statement for the year ended December 31, 2025. Use the single-step format, with all revenues listed together and all expenses listed together. 

2. Prepare HRC’s balance sheet at December 31, 2025. 

3. Prepare HRC’s statement of cash flows for the year ended December 31, 2025. 

Format cash flows from operating activities by the direct method.