Halpern Company's controller prepared the following income statement and balance sheet at the end of the first year of the company's existence: Income Statement Sales revenue $ 40,000 Cost of sales (20,000) Operating expenses (8,000) Net income $ 12,000 Balance Sheet Cash $ 33,000 Accounts payable $ 5,000 Inventory 24,000 Notes payable 40,000 R&D costs 30,000 Common stock 50,000 Property, plant, and equipment (net) 20,000 Retained earnings 12,000 $107,000 $107,000 Investigation shows that R&D costs include, among others, $8,000 of operating costs because "the company is not yet operating at capacity." In addition, R&D costs include $5,000 of materials that were wasted during early production because "our employees made some unnecessary mistakes." Required: Prepare the income statement according to GAAP. HALPERN COMPANYIncome StatementYear 1 $- Select - - Select - $- Select - - Select - - Select - $- Select - Prepare the balance sheet according to GAAP. HALPERN COMPANYBalance SheetYear 1 $- Select - - Select - Total current assets $fill in the blank 28b7c0fef06c073_5 - Select - Total assets $fill in the blank 28b7c0fef06c073_8 $- Select - - Select - Total liabilities $fill in the blank 28b7c0fef06c073_13 $- Select - - Select - Total shareholders' equity fill in the blank 28b7c0fef06c073_18 Total liabilities and shareholders' equity $fill in the blank 28b7c0fef06c073_19
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.
Halpern Company's controller prepared the following income statement and
| Income Statement | |
| Sales revenue | $ 40,000 |
| Cost of sales | (20,000) |
| Operating expenses | (8,000) |
| Net income | $ 12,000 |
| Balance Sheet | ||||
| Cash | $ 33,000 | Accounts payable | $ 5,000 | |
| Inventory | 24,000 | Notes payable | 40,000 | |
| R&D costs | 30,000 | Common stock | 50,000 | |
| Property, plant, and equipment (net) | 20,000 | 12,000 | ||
| $107,000 | $107,000 |
Investigation shows that R&D costs include, among others, $8,000 of operating costs because "the company is not yet operating at capacity." In addition, R&D costs include $5,000 of materials that were wasted during early production because "our employees made some unnecessary mistakes."
Required:
Prepare the income statement according to GAAP.
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Prepare the balance sheet according to GAAP.
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| Total current assets | $fill in the blank 28b7c0fef06c073_5 | |
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| Total assets | $fill in the blank 28b7c0fef06c073_8 | |
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| Total liabilities | $fill in the blank 28b7c0fef06c073_13 | |
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| Total shareholders' equity | fill in the blank 28b7c0fef06c073_18 | |
| Total liabilities and shareholders' equity | $fill in the blank 28b7c0fef06c073_19 |
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