David Ski Company had the following statements prepared as of December 31, 2020: Prepare a statement of cash flows using the indirect method. David Ski Company Comparative Balance Sheet As of December 31 2020 2019 Cash 2,500 4,000 Account receivable 103,000 97,000 Short-term investment (Available-for-sale) 96,000 121,000 Inventories 91,000 54,000 Prepaid insurance 4,000 6,000 Ski equipment 89,000 43,000 Accumulated depr.-equipment (23,500) (18,000) Trademarks 79,000 83,000 Total asets 441,000 390,000 Account payable 92,200 75,000 income taxes payable 21,800 15,700 Wages payable 4,000 9,000 Short-term loans payable to bank 23,500 0 Long-term loans payable 75,000 125,000 Common stock, $1 par 100,000 100,000 Additional paid-in capital 20,000 20,000 Retained earnings 104,500 45,300 Total liabilities&equity 441,000 390,000 David Ski Company Income Statement For the Year Ending December 31, 2020 Sales 540,200 Cost of goods sold 302,000 gross margin 238,200 Operating expenses 94,000 operating income 144,200 Interest expense 20,500 Loss on sale of equipment 4,000 24,500 Income before income tax 119,700 Income tax expense 40,500 Net income 79,200 Additional information: Depreciation expense and amortization expense are included in operating expenses. Equipment that had a cost of $25,000 and was 20% depreciated was sold during 2020. Dividends in the amount of $20,000 were declared and paid during 2020
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.
David Ski Company had the following statements prepared as of December 31, 2020:
Prepare a statement of
| David Ski Company | ||
| Comparative Balance Sheet | ||
| As of December 31 | ||
| 2020 | 2019 | |
| Cash | 2,500 | 4,000 |
| 103,000 | 97,000 | |
| Short-term investment (Available-for-sale) | 96,000 | 121,000 |
| Inventories | 91,000 | 54,000 |
| Prepaid insurance | 4,000 | 6,000 |
| Ski equipment | 89,000 | 43,000 |
| Accumulated depr.-equipment | (23,500) | (18,000) |
| Trademarks | 79,000 | 83,000 |
| Total asets | 441,000 | 390,000 |
| Account payable | 92,200 | 75,000 |
| income taxes payable | 21,800 | 15,700 |
| Wages payable | 4,000 | 9,000 |
| Short-term loans payable to bank | 23,500 | 0 |
| Long-term loans payable | 75,000 | 125,000 |
| Common stock, $1 par | 100,000 | 100,000 |
| Additional paid-in capital | 20,000 | 20,000 |
| 104,500 | 45,300 | |
| Total liabilities&equity | 441,000 | 390,000 |
| David Ski Company | ||
| Income Statement | ||
| For the Year Ending December 31, 2020 | ||
| Sales | 540,200 | |
| Cost of goods sold | 302,000 | |
| gross margin | 238,200 | |
| Operating expenses | 94,000 | |
| operating income | 144,200 | |
| Interest expense | 20,500 | |
| Loss on sale of equipment | 4,000 | 24,500 |
| Income before income tax | 119,700 | |
| Income tax expense | 40,500 | |
| Net income | 79,200 | |
Additional information:
- Depreciation expense and amortization expense are included in operating expenses.
- Equipment that had a cost of $25,000 and was 20%
depreciated was sold during 2020. - Dividends in the amount of $20,000 were declared and paid during 2020.
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