(Appendix 11A) Preparing a Statement of Cash Flows—Direct Method Financial statements for Rowe Publishing Company are presented below. Rowe Publishing Company Balance Sheets December 31, 2019 and 2018 ASSETS 2019 2018 Current assets: Cash $85,000 $66,000 Accounts receivable 240,000 231,000 Inventory 190,000 170,000 Total current assets $515,000 $467,000 Property, plant, and equipment: Building $400,000 $400,000 Equipment 155,000 130,000 $555,000 $530,000 Accumulated depreciation (375,000) (350,000) Net property, plant, and equipment 180,000 180,000 Total assets $695,000 $647,000 LIABILITIES AND EQUITY 2019 2018 Current liabilities: Accounts payable $133,000 $121,000 Salaries payable 15,000 11,000 Income taxes payable 10,000 17,000 Total current liabilities $158,000 $149,000 Long-term liabilities: Notes payable $115,000 $150,000 Bonds payable 50,000 0 Total long-term liabilities 165,000 150,000 Total liabilities $323,000 $299,000 Equity: Common stock $300,000 $300,000 Retained earnings 72,000 48,000 Total equity 372,000 348,000 Total liabilities and equity $695,000 $647,000 Rowe Publishing Company Income Statement For the year ended December 31, 2019 Sales $1,051,000 Less: Cost of goods sold (578,000) Gross margin $473,000 Less operating expenses: Salaries $(351,000) Depreciation (25,000) (376,000) Income from operations $97,000 Less: Interest expense (16,000) Income before taxes $81,000 Less: Income taxes expense (22,000) Net income $59,000 Additional Information: No buildings or equipment were sold during 2019. Equipment was purchased for $25,000 cash. Notes payable in the amount of $35,000 were repaid during 2019. Bonds payable of $50,000 were issued for cash during 2019. Rowe Publishing declared and paid dividends of $35,000 during 2019. Required: Prepare a statement of cash flows for 2019, using the direct method to determine net cash flow from operating activities. Use a minus sign to indicate any decreases in cash or cash outflows
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.
Exercise 11-50
(Appendix 11A) Preparing a Statement of
Financial statements for Rowe Publishing Company are presented below.
| Rowe Publishing Company Balance Sheets December 31, 2019 and 2018 |
|||||
| ASSETS | 2019 | 2018 | |||
| Current assets: | |||||
| Cash | $85,000 | $66,000 | |||
| 240,000 | 231,000 | ||||
| Inventory | 190,000 | 170,000 | |||
| Total current assets | $515,000 | $467,000 | |||
| Property, plant, and equipment: | |||||
| Building | $400,000 | $400,000 | |||
| Equipment | 155,000 | 130,000 | |||
| $555,000 | $530,000 | ||||
| (375,000) | (350,000) | ||||
| Net property, plant, and equipment | 180,000 | 180,000 | |||
| Total assets | $695,000 | $647,000 |
| LIABILITIES AND EQUITY | 2019 | 2018 | |||
| Current liabilities: | |||||
| Accounts payable | $133,000 | $121,000 | |||
| Salaries payable | 15,000 | 11,000 | |||
| Income taxes payable | 10,000 | 17,000 | |||
| Total current liabilities | $158,000 | $149,000 | |||
| Long-term liabilities: | |||||
| Notes payable | $115,000 | $150,000 | |||
| Bonds payable | 50,000 | 0 | |||
| Total long-term liabilities | 165,000 | 150,000 | |||
| Total liabilities | $323,000 | $299,000 | |||
| Equity: | |||||
| Common stock | $300,000 | $300,000 | |||
| 72,000 | 48,000 | ||||
| Total equity | 372,000 | 348,000 | |||
| Total liabilities and equity | $695,000 | $647,000 |
| Rowe Publishing Company Income Statement For the year ended December 31, 2019 |
|||
| Sales | $1,051,000 | ||
| Less: Cost of goods sold | (578,000) | ||
| Gross margin | $473,000 | ||
| Less operating expenses: | |||
| Salaries | $(351,000) | ||
| Depreciation | (25,000) | (376,000) | |
| Income from operations | $97,000 | ||
| Less: Interest expense | (16,000) | ||
| Income before taxes | $81,000 | ||
| Less: Income taxes expense | (22,000) | ||
| Net income | $59,000 |
Additional Information:
- No buildings or equipment were sold during 2019. Equipment was purchased for $25,000 cash.
- Notes payable in the amount of $35,000 were repaid during 2019.
- Bonds payable of $50,000 were issued for cash during 2019.
- Rowe Publishing declared and paid dividends of $35,000 during 2019.
Required:
Prepare a statement of cash flows for 2019, using the direct method to determine net cash flow from operating activities. Use a minus sign to indicate any decreases in cash or
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