Eastwood CompanyAdjusted Trial BalanceDecember 31, 2020 Debit Credit Cash $ 41,000 Accounts Receivable 163,500 Allowance for Doubtful Accounts $ 8,700 Prepaid Insurance 5,900 Inventory 208,500 Equity Investments (long-term) 339,000 Land 85,000 Construction in Process (building) 124,000 Patents 36,000 Equipment 400,000 Accumulated Depreciation—Equipment 240,000 Discount on Bonds Payable 20,000 Accounts Payable 148,000 Accrued Liabilities 49,200 Notes Payable 94,000 Bonds Payable 200,000 Common Stock 500,000 Paid-in Capital in Excess of Par—Common Stock 45,000 Retained Earnings 138,000 $1,422,900 $1,422,900 Additional information: 1. The LIFO method of inventory value is used. 2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same. 3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed cost $85,000, as shown in the trial balance. 4. The patents were purchased by the company at a cost of $40,000 and are being amortized on a straight-line basis. 5. Of the discount on bonds payable, $2,000 will be amortized in 2021. 6. The notes payable represent bank loans that are secured by long-term investments carried at $120,000. These bank loans are due in 2021. 7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2031. 8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding. Instructions Prepare a balance sheet as of December 31, 2020, so that all important information is fully disclosed.
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.
| Eastwood Company Adjusted December 31, 2020 |
||||
| Debit | Credit | |||
| Cash | $ 41,000 | |||
| Accounts Receivable | 163,500 | |||
| Allowance for Doubtful Accounts | $ 8,700 | |||
| Prepaid Insurance | 5,900 | |||
| Inventory | 208,500 | |||
| Equity Investments (long-term) | 339,000 | |||
| Land | 85,000 | |||
| Construction in Process (building) | 124,000 | |||
| Patents | 36,000 | |||
| Equipment | 400,000 | |||
| 240,000 | ||||
| Discount on Bonds Payable | 20,000 | |||
| Accounts Payable | 148,000 | |||
| Accrued Liabilities | 49,200 | |||
| Notes Payable | 94,000 | |||
| Bonds Payable | 200,000 | |||
| Common Stock | 500,000 | |||
| Paid-in Capital in Excess of Par—Common Stock | 45,000 | |||
| 138,000 | ||||
| $1,422,900 | $1,422,900 |
Additional information:
1. The LIFO method of inventory value is used.
2. The cost and fair value of the long-term investments that consist of stocks (with ownership less than 20% of total shares) are the same.
3. The amount of the Construction in Progress account represents the costs expended to date on a building in the process of construction. (The company rents factory space at the present time.) The land on which the building is being constructed cost $85,000, as shown in the trial balance.
4. The patents were purchased by the company at a cost of $40,000 and are being amortized on a straight-line basis.
5. Of the discount on bonds payable, $2,000 will be amortized in 2021.
6. The notes payable represent bank loans that are secured by long-term investments carried at $120,000. These bank loans are due in 2021.
7. The bonds payable bear interest at 8% payable every December 31, and are due January 1, 2031.
8. 600,000 shares of common stock of a par value of $1 were authorized, of which 500,000 shares were issued and outstanding.
Instructions
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