Forten Company's current-year Income statement, comparative balance sheets, and additional Information follow. For the year. (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all purchases of Inventory are on credit, and (4) all debits to Accounts Payable reflect cash payments for Inventory. Sales Cost of goods sold Gross profit Operating expenses (excluding depreciation) Depreciation expense Other gains (losses) FORTEN COMPANY Income Statement For Current Year Ended December 31 Loss on sale of equipment Income before taxes Income taxes expense Net income Assets Cash Accounts receivable Inventory Prepaid expenses Total current assets FORTEN COMPANY Comparative Balance Sheets At December 31 Equipment Accumulated depreciation-Equipment Total assets $ 150,400 38,750 Liabilities and Equity Accounts payable Long-term notes payable Total liabilities Equity Common shares, $5 par value Paid-in capital in excess of par, common shares Retained earnings Total liabilities and equity $ 672,500 303,000 369,500 189,150 (23,125) 157,225 49,450 $ 107,775 Current Year $ 76,900 92,950 302,656 1,390 473,896 139,500 (45,625) $ 567,771 $ 71,141 71,400 142,541 189,750 64,500 170,980 Prior Year $ 91,500 68,625 269,800 2,255 432,180 126,000 (55,000) $ 503,180 $ 141,675 76,350 218,025 168,250 116,905 $ 567,771 $ 503,180 Additional Information on Current-Year Transactions a. The loss on the cash sale of equipment was $23,125 (detalls in b). b. Sold equipment costing $100,875, with accumulated depreciation of $48,125, for $29,625 cash. c. Purchased equipment costing $114,375 by paying $66,000 cash and signing a long-term note payable for the balance. d. Pald $53,325 cash to reduce the long-term note payable. e. Issued 4,300 common shares for $20 cash per share. 1. Declared and paid cash dividends of $53,700.
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.
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Forten Company's current-year Income statement, comparative balance sheets, and additional Information follow. For the
year, (1) all sales are credit sales, (2) all credits to Accounts Receivable reflect cash receipts from customers, (3) all
purchases of Inventory are on credit, and (4) all debits to Accounts Payable reflect cash payments for Inventory.
Sales
Cost of goods sold
Gross profit
Operating expenses (excluding depreciation)
Depreciation expense
Other gains (losses)
Loss on sale of equipment
Income before taxes
Income taxes expense
Net income
Assets
Cash
FORTEN COMPANY
Income Statement
For Current Year Ended December 31
Accounts receivable
Inventory
Prepaid expenses
Total current assets
Equipment
Accumulated depreciation-Equipment
Total assets
Liabilities and Equity
Accounts payable
Long-term notes payable
Total liabilities
Equity
Common shares, $5 par value
FORTEN COMPANY
Comparative Balance Sheets
At December 31
$ 150,400
38,750
Paid-in capital in excess of par, common shares
Retained earnings
Total liabilities and equity
$ 672,500
303,000
369,500
189, 150
(23, 125)
157,225
49,450
$ 107,775
Current Year
$ 76,900
92,950
302,656
1,390
473,896
139,500
(45,625)
$ 567,771
$ 71,141
71,400
142,541
189,750
64,500
170,980
$ 567,771
Prior Year
$ 91,500
68,625
269,800
2,255
432,180
126,000
(55,000)
$ 503,180
$ 141,675
76,350
218,025
168, 250
8
116,905
$ 503,180
Additional Information on Current-Year Transactions
a. The loss on the cash sale of equipment was $23,125 (details in b).
b. Sold equipment costing $100,875, with accumulated depreciation of $48,125, for $29,625 cash.
c. Purchased equipment costing $114,375 by paying $66,000 cash and signing a long-term note payable for the balance.
d. Paid $53,325 cash to reduce the long-term note payable.
e. Issued 4,300 common shares for $20 cash per share.
f. Declared and paid cash dividends of $53,700.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F73bec75a-76bc-4068-8ade-f7b89e4f66a3%2F7c75da8d-fcd2-4577-b89d-b8266c292397%2F4xshrg_processed.png&w=3840&q=75)
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