Condensed comparative balance sheets of Barry Company at December 31, Years 1 and 2, are as follows: Year 2 Year 1 Cash $72,000 $42,500 Accounts receivable (net) 61,000 70,200 Inventories 121,000 105,000 Investments - 100,000 Equipment 515,000 425,000 Accumulated depreciation—equipment (153,000) (175,000) Total assets $616,000 $567,700 Accounts payable $59,750 $47,250 Bonds payable - 75,000 Common stock, $20 par 375,000 325,000 Paid-in capital in excess of par 50,000 25,000 Retained earnings 131,250 95,450 Total liabilities and stockholders’ equity $616,000 $567,700 Additional data for Year 2 are as follows: • Net income, $75,800. • Depreciation reported on income statement, $38,000. • Fully depreciated equipment costing $60,000 was scrapped, no salvage value, and new equipment was purchased for $150,000. • Bonds payable of $75,000 were retired by payment at their face amount. • 2,500 shares of common stock were issued at $30 for cash. • Cash dividends declared and paid, $40,000. • Investments of $100,000 were sold for $125,000. Prepare a statement of cash flows for the year ended December 31, Year 2, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
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.
1)Changes in current assets and current liabilities are reported on the statement of
2)Lamar Corporation purchased land for $151,000. Later in the year, the company sold land with a book value of $182,000 for $204,000. Show how the effects of these transactions are reported on the statement of cash flows using the indirect method.
3)The board of directors declared cash dividends totaling $168,000 during the year. The comparative
4)
Condensed comparative balance sheets of Barry Company at December 31, Years 1 and 2, are as follows:
|
Year 2
|
Year 1
|
|
| Cash |
$72,000
|
$42,500
|
|
61,000
|
70,200
|
|
| Inventories |
121,000
|
105,000
|
| Investments |
-
|
100,000
|
| Equipment |
515,000
|
425,000
|
|
(153,000)
|
(175,000)
|
|
| Total assets |
$616,000
|
$567,700
|
|
|
||
| Accounts payable |
$59,750
|
$47,250
|
| Bonds payable |
-
|
75,000
|
| Common stock, $20 par |
375,000
|
325,000
|
| Paid-in capital in excess of par |
50,000
|
25,000
|
|
131,250
|
95,450
|
|
| Total liabilities and |
$616,000
|
$567,700
|
Additional data for Year 2 are as follows:
| • Net income, $75,800. |
| • Depreciation reported on income statement, $38,000. |
| • Fully depreciated equipment costing $60,000 was scrapped, no salvage value, and new equipment was purchased for $150,000. |
| • Bonds payable of $75,000 were retired by payment at their face amount. |
| • 2,500 shares of common stock were issued at $30 for cash. |
| • Cash dividends declared and paid, $40,000. |
| • Investments of $100,000 were sold for $125,000. |
Prepare a statement of cash flows for the year ended December 31, Year 2, using the indirect method. Use the minus sign to indicate cash out flows, cash payments, decreases in cash, or any negative adjustments.
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