A comparative balance sheet for Shabbona Corporation is presented as follows. December 31 Assets 2020 2019 Cash $ 73,000 $ 22,000 Accounts receivable 82,000 66,000 Inventory 180,000 189,000 Land 71,000 110,000 Equipment 260,000 200,000 Accumulated depreciation—equipment (69,000) (42,000) Total $597,000 $545,000 Liabilities and Stockholders' Equity Accounts payable $ 34,000 $ 47,000 Bonds payable 150,000 200,000 Common stock ($1 par) 214,000 164,000 Retained earnings 199,000 134,000 Total $597,000 $545,000 Additional information: 1. Net income for 2020 was $125,000. No gains or losses were recorded in 2020. 2. Cash dividends of $60,000 were declared and paid. 3. Bonds payable amounting to $50,000 were retired through issuance of common stock. Instructions a. Prepare a statement of cash flows for 2020 for Shabbona Corporation. b. Determine Shabbona Corporation’s current cash debt coverage, cash debt coverage, and free cash flow. Comment on its liquidity and financial flexibility.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
A comparative
| December 31 | ||||
| Assets | 2020 | 2019 | ||
| Cash | $ 73,000 | $ 22,000 | ||
| 82,000 | 66,000 | |||
| Inventory | 180,000 | 189,000 | ||
| Land | 71,000 | 110,000 | ||
| Equipment | 260,000 | 200,000 | ||
| (69,000) | (42,000) | |||
| Total | $597,000 | $545,000 | ||
| Liabilities and |
||||
| Accounts payable | $ 34,000 | $ 47,000 | ||
| Bonds payable | 150,000 | 200,000 | ||
| Common stock ($1 par) | 214,000 | 164,000 | ||
| 199,000 | 134,000 | |||
| Total | $597,000 | $545,000 |
Additional information:
1. Net income for 2020 was $125,000. No gains or losses were recorded in 2020.
2. Cash dividends of $60,000 were declared and paid.
3. Bonds payable amounting to $50,000 were retired through issuance of common stock.
Instructions
a. Prepare a statement of
b. Determine Shabbona Corporation’s current cash debt coverage, cash debt coverage, and
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 4 images
