Reference no: EM132522693

Antique Automobiles of Dubai, Inc. was formed on January 1, 2016. The following transactions occurred during 2016:

On January 1, 2016, Antique issued its shares for $440,000. Early in January, Antique made the following cash payments:

1. $180,000 for equipment
2. $203,000 for inventory (7 cars at $29,000 each)
3. $17,000 for 2016 rent on a store building

• In February, Antique purchased two cars for inventory on account. Cost of this inventory was $80,000 ($40,000 each). Before year-end, Antique paid $56,000 of this debt. Antique uses the FIFO method to account for inventory.
• During 2016, Antique sold eight vintage autos for a total of $488,000. Before year-end, Antique collected 80% of this amount.
• The business employs 5 people. The combined annual payroll is $125,000, of which Antique owes $7,000 at year-end.
• At the end of the year, Antique paid income tax of $12,600.
• Late in 2016, Antique declared and paid cash dividends of $12,000.
• For equipment, Antique uses the straight-line depreciation method, over 5 years, with zero residual value.
• At the year end Antique estimates that 30% of its account receivables (balance as at 31/12/2016) is uncollectible.

Requirements:

Question 1. prepare antique Automobiles of Dubai, Inc.'s income statement for the year ended December 31, 2016.

Question 2. prepare antique's balance sheet at December 31, 2016.

Question 3. prepare antique's statement of cash flows for the year ended December 31, 2016. Format cash flows from operating activities by using the indirect method.

Question 4. Calculate basic financial ratios: Return on sale (ROS), Return on assets (ROA), Total asset turnover, Current ratio, Debt ratio.

Question 5. What would happen to Antique financial ratios if company did not impair its accounts receivable at the year end. Recalculate the ratios.