Comparative financial statements for Weaver Company follow: Weaver Company Comparative Balance Sheet at December 31 This Year Last Year Assets Cash $ 9 $ 21 Accounts receivable 610 380 Inventory 175 240 Prepaid expenses 10 8 Total current assets 804 649 Property, plant, and equipment 690 580 Less accumulated depreciation 80 70 Net property, plant, and equipment 610 510 Long-term investments 10 48 Total assets $ 1,424 $ 1,207 Liabilities and Stockholders' Equity Accounts payable $ 400 $ 290 Accrued liabilities 50 60 Income taxes payable 85 78 Total current liabilities 535 428 Bonds payable 390 280 Total liabilities 925 708 Common stock 341 450 Retained earnings 158 49 Total stockholders’ equity 499 499 Total liabilities and stockholders' equity$ 1,424 $ 1,207 Weaver Company Income Statement For This Year Ended December 31 Sales $880 Cost of goods sold 490 Gross margin 390 Selling and administrative expenses 203 Net operating income 187 Nonoperating items: Gain on sale of investments $12 Loss on sale of equipment (9) 3 Income before taxes 190 Income taxes 57 Net income $133 During this year, Weaver sold some equipment for $10 that had cost $49 and on which there was accumulated depreciation of $30. In addition, the company sold long-term investments for $50 that had cost $38 when purchased several years ago. Weaver paid a cash dividend this year and the company repurchased $109 of its own stock. This year Weaver did not retire any bonds. Required: 1. Using the direct method, adjust the company’s income statement for this year to a cash basis. 2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet accounts, prepare a statement of cash flows for this year.
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.
Comparative financial statements for Weaver Company follow:
Weaver Company
Comparative Balance Sheet
at December 31
This Year Last Year
Assets
Cash $ 9 $ 21
Accounts receivable 610 380
Inventory 175 240
Prepaid expenses 10 8
Total current assets 804 649
Property, plant, and equipment 690 580
Less
Net property, plant, and equipment 610 510
Long-term investments 10 48
Total assets $ 1,424 $ 1,207
Liabilities and Stockholders' Equity
Accounts payable $ 400 $ 290
Accrued liabilities 50 60
Income taxes payable 85 78
Total current liabilities 535 428
Bonds payable 390 280
Total liabilities 925 708
Common stock 341 450
Retained earnings 158 49
Total
Total liabilities and stockholders' equity$ 1,424 $ 1,207
Weaver Company
Income Statement
For This Year Ended December 31
Sales $880
Cost of goods sold 490
Gross margin 390
Selling and administrative expenses 203
Net operating income 187
Nonoperating items:
Gain on sale of investments $12
Loss on sale of equipment (9) 3
Income before taxes 190
Income taxes 57
Net income $133
During this year, Weaver sold some equipment for $10 that had cost $49 and on which there was
accumulated depreciation of $30. In addition, the company sold long-term investments for $50 that
had cost $38 when purchased several years ago. Weaver paid a cash dividend this year and the
company repurchased $109 of its own stock. This year Weaver did not retire any bonds.
Required:
1. Using the direct method, adjust the company’s income statement for this year to a cash basis.
2. Using the information obtained in (1) above, along with an analysis of the remaining balance sheet
accounts, prepare a statement of
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