Empress Company provided the following data for the current year: Retained earnings, January 1 3,000,000 Dividends declared 1,000,000 Sales 8,400,000 Dividend income 100,000 Inventory, January 1 1,000,000 Purchases 3,700,000 Salaries 1,540,000 Contri8bution to employee's pension fund 300,000 Delivery 200,000 Miscellaneous expense 120,000 Doubtful account expense 10,000 Depreciation expense 80,000 Loss on sale of invenstment 100,000 Income from discontinued operation, net of tax 500,000 Income tax expense 150,000 Inventory on December 31 at cost 850,000 Net realizable value of inventory 700,000 REQUIRED: 1. What amount should be reported as net income after the current year? A. 2,000,000 B. 2,500,000 C. 1,500,000 D. 2,650,000
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.
Empress Company provided the following data for the current year:
Dividends declared 1,000,000
Sales 8,400,000
Dividend income 100,000
Inventory, January 1 1,000,000
Purchases 3,700,000
Salaries 1,540,000
Contri8bution to employee's pension fund 300,000
Delivery 200,000
Miscellaneous expense 120,000
Doubtful account expense 10,000
Loss on sale of invenstment 100,000
Income from discontinued operation,
net of tax 500,000
Income tax expense 150,000
Inventory on December 31 at cost 850,000
Net realizable value of inventory 700,000
REQUIRED:
1. What amount should be reported as net income after the current year?
A. 2,000,000
B. 2,500,000
C. 1,500,000
D. 2,650,000
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