Gary’s TV had the following accounts and amounts in its financial statements on December 31, 2022. Assume that all balance sheet items reflect account balances at December 31, 2022, and that all income statement items reflect activities that occurred during the year then ended. Interest expense $ 4,900 Paid-in capital 13,200 Accumulated depreciation 3,800 Notes payable (long-term) 43,000 Rent expense 10,200 Merchandise inventory 114,000 Accounts receivable 34,000 Depreciation expense 1,900 Land 27,000 Retained earnings 142,500 Cash 30,500 Cost of goods sold 228,000 Equipment 18,000 Income tax expense 42,000 Accounts payable 21,000 Net sales 350,000 Required: Calculate the difference between current assets and current liabilities for Gary’s TV at December 31, 2022. Calculate the total assets at December 31, 2022. Calculate the earnings from operations (operating income) for the year ended December 31, 2022. Calculate the net income (or loss) for the year ended December 31, 2022. What was the average income tax rate for Gary’s TV for 2022? If $30,000 of dividends had been declared and paid during the year, what was the January 1, 2022, balance of retained earnings?
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.
Gary’s TV had the following accounts and amounts in its financial statements on December 31, 2022. Assume that all
| Interest expense | $ 4,900 |
|---|---|
| Paid-in capital | 13,200 |
| 3,800 | |
| Notes payable (long-term) | 43,000 |
| Rent expense | 10,200 |
| Merchandise inventory | 114,000 |
| 34,000 | |
| Depreciation expense | 1,900 |
| Land | 27,000 |
| 142,500 | |
| Cash | 30,500 |
| Cost of goods sold | 228,000 |
| Equipment | 18,000 |
| Income tax expense | 42,000 |
| Accounts payable | 21,000 |
| Net sales | 350,000 |
Required:
- Calculate the difference between current assets and current liabilities for Gary’s TV at December 31, 2022.
- Calculate the total assets at December 31, 2022.
- Calculate the earnings from operations (operating income) for the year ended December 31, 2022.
- Calculate the net income (or loss) for the year ended December 31, 2022.
- What was the average income tax rate for Gary’s TV for 2022?
- If $30,000 of dividends had been declared and paid during the year, what was the January 1, 2022, balance of retained earnings?
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